MUMBAI: The Securities and Exchange Board of India (Sebi) on Monday barred brokerage IIFL Securities from onboarding new clients for two years for misutilisation of client funds.
The order came after the capital markets regulator conducted multiple inspections of the books of account of IIFL for the period April 2011 to January 2017. In its probe, Sebi found IIFL had misused the funds of its credit balance clients for settlement of its proprietary trades as well as the trades of its debit balance clients from April 2011 to June 2014, and the said violations were again noticed during March 2017 inspection for the period of FY 2015-16 and 2016-17.
“Taking into account the aforementioned data, I do not find any difficulty in holding that the Noticee (IIFL) by misusing the monies of credit clients to fund the trades of clients having debit balance in its records as well as for its own proprietary trades, has violated the provisions of ... Sebi 1993 circular,” Sebi whole-time member SK Mohanty said in his 64-page final order.
The funding of debit balance clients’ trades using funds of credit balance clients has been done by IIFL on a total of 795 trading days out of 809 total trading days covered for examination during the inspection period from April 1, 2011, to June 30, 2014, and on 30 trading days during April 1, 2015, to January 31, 2017, Sebi noted.
The company also used the funds of clients having credit balances to fund its own proprietary transactions on 42 trading days during the inspection period from April 2011 to June 2014. In addition, the broking firm also breached provisions of the code of conduct prescribed under stock broker rules, which every registered stockbroker is obligated to adhere to.
“IIFL had acted in complete disregard of the legitimate interests of its credit balance clients and has not only benefitted itself but also provided benefits to its debit balance clients at the cost of its credit balance clients by using funds of credit balance clients to settle its own proprietary trades as well as the trades of its debit balance clients to the tune of hundreds of crores of rupees,” he added.