Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs10 lakh on Anand Rathi Share and Stock Broker Ltd for breaching stock broker regulations.
In his order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, observed that the stockbroker was under a statutory obligation to abide by and comply with the provisions of the circulars or directions issued by SEBI and stock exchanges, which it failed to do during the inspection period. "The very purpose of the said provisions is to deter wrongdoing and promote ethical conduct in the securities market. While remedial action has been taken in some cases, Anand Rathi Share and Stock Broker, being a registered intermediary, is expected to take the statutory compliances seriously and take extra care to maintain a high degree of professionalism in the conduct of their business."
After a detailed inspection covering the period from April 2022 to October 2023, the regulator identified multiple instances of non-compliance by the stockbroker, including failure to collect margins properly and not reporting technical glitches.
SEBI's inspection findings uncovered several instances of non-compliance with its regulations, particularly regarding the settlement of funds for inactive clients. The evidence revealed amounts owed to clients ranging from Rs25,444 for four clients in October 2023 to a significant Rs1.26 crore owed to 125 clients in November 2022. This failure to settle funds for inactive clients raised serious concerns about the broker's adherence to regulatory requirements.
Anand Rathi Share and Stock Broker contended that delays in fund settlement were primarily due to operational barriers, with five instances linked to legal matters preventing settlement. For 4,220 cases involving 1,063 unique clients, the broker attributed delays to incorrect bank account details. Despite efforts to resolve these issues through SMS and email communication, the accounts of 160 clients remained unsettled. Furthermore, tax-related complications delayed the settlement for one non-resident Indian (NRI) client, it added.
Further, the SEBI inspection also uncovered improper handling of penalties for short collection of upfront margins. SEBI noted that Anand Rathi had improperly passed penalties for margin shortfalls to clients in violation of Bombay Stock Exchange (BSE) notices and SEBI's code of conduct.
The broker admitted to passing penalties amounting to Rs4.56 crore, of which Rs2.32 crore was reversed, leaving Rs2.24 crore unreversed. SEBI found the broker failed to provide supporting documents for many of these penalties, highlighting regulatory lapses.
In addition to these issues, the broker was found in violation of regulations related to margin collection from margin trading facility (MTF) clients. SEBI mandates margin collection to safeguard investor interests, which the broker failed to adhere to.
SEBI inspection also revealed a significant lapse in compliance with disaster recovery (DR) protocol. The broker did not conduct the required disaster recovery drills and live trading from its disaster recovery site on a half-yearly basis, as mandated by SEBI and National Stock Exchange (NSE) regulations. This non-compliance resulted in an additional penalty of Rs8 lakh levied by the National Commodity and Derivatives Exchange (NCDX).
Anand Rathi Share and Stock Broker stated that it had initiated DR planning in September 2022 but faced technical difficulties that delayed live operations. The DR drills were eventually conducted only in July and August 2024, well beyond the stipulated time frame.
Moreover, the stockbroker did not adequately monitor peak loads and capacity planning for trading applications and servers, further compounding its regulatory violations.
SEBI's regulations specify that brokers must ensure their infrastructure can handle 1.5 times the observed peak load during a calendar quarter, which Anand Rathi failed to monitor during the specified periods.
