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The market regulator has banned brokerage IIFL from onboarding new clients for two years, for mixing clients’ funds with proprietary funds, for using credit-balance client accounts to settle obligations of debit-balance client accounts, and for using credit-balance client accounts to settle proprietary-trade obligations.
The Securities and Exchange Board of India (Sebi) in its order dated June 19 said, “the Noticee has flagrantly violated the provisions of SEBI 1993 Circular in various ways to clearly disregard the basic premise of the said circular both in letter and spirit in complete defiance of Regulatory instructions”.
It added, “The Noticee firstly didn’t assign its accounts appropriate nomenclature wherein it was keeping clients’ monies so as to clearly label them as ‘client accounts’. Additionally, it was mixing clients’ funds with its own funds before using those mixed funds for its own proprietary usage. In the end, it was using funds of its credit balance clients’ to not only fund trades of its debit balance clients but also to fund its own trades.
This clearly demonstrates an utter disregard for the provisions of SEBI 1993 Circular by the Noticee at least during the period of April 01, 2011 to January 31, 2017. The said disregard and violation of provisions of SEBI 1993 Circular has further have, as a consequence, led to the violation of Clauses A(1), A(2) and A(5) of Code of Conduct for Stock Broker as given in Schedule II read with Regulation 9(f) of Stock Brokers Regulations.”
The market regulator conducted a thematic inspection of the books of accounts of IIFL from January 30 to February 03, 2014, during which the records and the processes of IIFL from April 01, 2011, to December 31, 2013, were inspected.
The purpose of the said inspection was to examine as to whether IIFL was working in compliance with the provisions of the SEBI Circular ref.
SMD/SED/CIR/93/23321 dated November 18, 1993 (hereinafter referred to as the “SEBI 1993 Circular”) as well as SEBI circular ref. MRD/DoP/SE/Cir11/2008 dated April 17, 2008, as far as segregation of funds and securities of clients are concerned.
(This is a developing story. Please check for updates.)
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