Adjudication Order No. AO/SG-VS/EAD/31/2017. Case: In Re: Indovision Securities Limited Vs. Securities and Exchange Board of India

Case Number:Adjudication Order No. AO/SG-VS/EAD/31/2017
Party Name:In Re: Indovision Securities Limited Vs
Judges:Suresh Gupta, Adjudicating Officer
Issue:Securities And Exchange Board Of India Act, 1992 - Sections 15HB, 15I, 15J
Judgement Date:March 08, 2017
Court:Securities and Exchange Board of India
 
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Order:

Suresh Gupta, Adjudicating Officer

BACKGROUND:

  1. M/s. Indovision Securities Limited (hereinafter referred to as "ISL"/"Noticee") is a trading member of National Stock Exchange Ltd. (hereinafter referred to as NSE) having registration number INB/INF 231433039, BSE Limited (hereinafter referred to as "BSE") having registration number INB/INF 011433035 and MCX-SX having registration number INE 261433036.

  2. Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted an inspection of the Noticee. The scope of the inspection was to check whether provisions of SEBI Master Circular No. CIR/DNPD/1/2012 dated January 02, 2012 and circulars issued by Stock Exchanges with regard to collection and reporting of margins have been complied by the Noticee. The period was from April 2012 till date of inspection (hereinafter referred to as "Inspection Period").

  3. During inspection, a sample of 9 dates was selected when the broker had significant margin requirement in NSE - equity derivatives segment. 50 clients who had provided required margin as per broker compliance file were short-listed for inspection. 20 clients were chosen wherein clients couldn't provide required margin and margin shortfall was reported by the broker.

  4. The summary of details of alleged wrong reporting/non-collection of margins by ISL in Futures & Options (F&O) Segment is as under:

    From the above, it was alleged that there were 18 instances in F&O segment where there was difference in amount of margin available and amount of margin reported by ISL.

  5. It was also alleged that there were few clients who repeatedly defaulted in paying margin on time and ISL had no proper measures to limit such recurrences.

  6. In view of the above, it is alleged that the Noticee has violated the provisions of NSE Circular No. NSE/INSP/19583 dated December 14, 2011 on clarification on margin collection & reporting (hereinafter referred to as "Circular") and provisions of clauses A(2) & A(5) of the code of conduct as specified under schedule II read with Regulation 7 of the SEBI (Stock Brokers & Sub Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations")

    APPOINTMENT OF ADJUDICATING OFFICER

  7. The undersigned was appointed as Adjudicating Officer (hereinafter referred to as "AO") vide Order dated April 26, 2016 and the said appointment was communicated vide communique dated June 6, 2016. The undersigned was appointed as AO under Section 15I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") and Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as "Rules") to inquire into and adjudge, under the provisions of Section 15HB of the SEBI Act, the alleged violations of provisions of the Circular and Stock Brokers Regulations by the Noticee.

    SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

  8. A Show Cause Notice bearing No. EAD/SG/AK/18210/1/2016 dated June 27, 2016 (hereinafter referred to as "SCN") in terms of the provisions of Rule 4(1) of Rules was issued to the Noticee, calling upon it to show cause as to why an inquiry should not be held against it under Rule 4 of the Rules read with Section 15-I of SEBI Act and why penalty should not be imposed on the Noticee under Section 15HB of SEBI Act for the alleged violations.

  9. Noticee vide its letter dated July 08, 2016 submitted its reply to the SCN wherein it stated as follows:

    ".....

    This is with reference to your above mentioned notice in respect of 'wrong reporting of margin' and 'Margin Shortfall and wrong reporting of margin', we would like to inform your goodself that most of the cases of violations observed during the inspection conducted by SEBI Officials were resulted due to bank and other holidays. Apart from holidays due to employees leave might have resulted into such delays as we never believe in doing wrong intentionally or violate the rules of the Regulatory/Exchange Circulars. There is no reason for wrong reporting of margin where the penalty amount for the margin shortfall is debited to the defaulting clients. During the inspection we got some clarification from senior officers and we have implemented the same in our day to day operations and we check our back officer on regularly basis for non recurrence of the same. However post inspection we assure you that there would be no such instances of wrong reporting. It is earnest request to you to please do not treat these instances as wrong reporting and allow us to improve our operations.

    Further in few instances amount not reflected in Bank Account, for this now we ask our outstation clients (who directly deposit the cheques in our Bank account) to send the scan copy of Deposit Slips duly stamped by the Bank and the same is reported after we...

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