Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs8 lakh on 5 Paisa Capital Ltd for not reporting to exchanges six technical glitches, including one that blocked the intraday square-off process during trading hours for clients.
In an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, pointed out six issues like fund transfer, slowness in the database, collateral or margin updation, risk management system (RMS) application, not updating pay-in for some clients and fund transfer.
"In the present matter, it is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the defaults by 5 Paisa Capital. Further, from the material available on record, it may not be possible to ascertain the exact monetary loss to the clients on account of default by 5 Paisa Capital. Further, as per the available records, it is observed that 5 Paisa Capital has been penalised earlier for the violation of the code of conduct. However, the fact cannot be ignored that as a SEBI registered intermediary, 5 Paisa Capital was under statutory obligation to comply with the applicable circulars, rules and regulations," the AO says, while slapping a Rs8 lakh penalty.
During its inspection, SEBI observed six technical glitches in the trading systems of 5 Paisa Capital. SEBI found two instances—on 24 June 2022 and 31 October 2022—that lasted for more than one hour and since there was variance in the normal functions and operations of the systems of the member for more than 15 minutes, the incidents fell within the ambit of a technical glitch.
The incident on 13 February 2023 impacted 800 clients and lasted for 20 minutes. On two occasions, on 15 May 2023 and 1 June 2023, due to functional issues, incorrect or insufficient allocation was made or uploaded by 5 Paisa Capital to the clearing corporation.
On 25 July 2023, a technical issue was observed in the RMS application of 5 Paisa Capital that affected six clients. RMS system is a critical application for monitoring clients' positions and limits and squaring off the client's positions. If it encounters an issue, there could have been a significant impact on the margins for hedge positions, allowing clients to place trades beyond the available margins.
Further, on 1 September 2023, funds transferred by the clients were not updated in pay-in for the clients due to the triggering of a bug for a specific condition. The incident lasted two hours and 26 minutes and impacted six clients of 5 Paisa Capital.
The technical glitch on 21 December 2023 lasted for 2 hours and 47 minutes. As per the RCA (root cause analysis) provided by 5 Paisa Capital, the intraday execution process was delayed because of blocking the intraday square-off process on database. Due to this, the client's funds pay-in was not getting updated on a real-time basis, due to which trading was impacted.
Thus, the SEBI AO says 5 Paisa Capital did not report the above incidents of technical glitches to the exchanges. "...as a SEBI registered intermediary, 5 Paisa Capital was under statutory obligation to comply with the applicable circulars, rules and regulations. The very purpose of the said regulations is to deter wrong doing and promote ethical conduct in the securities market. Therefore, such non-compliance deserves and attracts imposition of suitable penalty."
Earlier in July 2024, SEBI slapped a penalty of Rs2 lakh on 5 Paisa Capital for discrepancies found in the unique client code (UCC) data uploaded on the Multi Commodity Exchange of India Ltd (MCX) platform. SEBI's examination uncovered significant discrepancies in the UCC data uploaded by the intermediary. Specifically, 22 clients of 5 Paisa Capital outside Sikkim were incorrectly categorised as Sikkim-based. This error could potentially result in the misuse of stamp duty exemptions which are exclusively available to Sikkim-domiciled residents. (
Read: SEBI Slaps Rs5 Lakh Penalty on IIFL Securities and 5 Paisa Capital for Mismatched Client Data)
