Market regulator, Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs2 lakh on Nirmal Bang Securities Pvt Ltd for scrutiny over significant compliance issues related to the actions of authorised persons (APs) of the stockbroker.
In an order, Shashi Kumar Valsakumar, adjudicating officer (AO) of SEBI, says, "I find from the observations made in the inspection report, material available on record and the discussion above in the order that the AP of Nirmal Bang Securities has failed to maintain or keep evidence for placement of client order placement, display of mandatory information, notices and maintenance of complaint register. Further, as a stockbroker is responsible for all acts of omission and commission of his APs, Nirmal Bang Securities is found to be responsible for the non-compliances and make the Noticee liable for monetary penalty under the provisions of section 15HB of the SEBI Act".
SEBI's inspection, conducted from 22 August 2024 to 24 August 2023, focused on the records of the stockbroker from 1 April 2022 to 31 May 2023, with particular attention to trade verification and client identity confirmation processes.
SEBI inspection findings, communicated to the stockbroker, highlighted lapses in client verification during trades executed by two of the APs, Upendra Kantilal Doshi and Jatin Bhanushali. The stockbroker was expected to ensure compliance with SEBI's regulations, particularly concerning due diligence and the prevention of unauthorised trading.
Nirmal Bang Securities submitted its response to SEBI on 29 December 2023, but the regulator found the explanations for certain discrepancies unsatisfactory.
One of the primary issues involved client trade discrepancies, particularly concerning two clients, where the authorised persons placed trades without properly verifying client identities. In both cases, while call recordings were maintained, failing to confirm client details during the trade process was considered a breach of due diligence standards, SEBI says.
Further, Mr Doshi was scrutinised for executing 30 trades in family accounts without pre-order confirmation, which raised concerns about compliance with SEBI regulations. Meanwhile, Mr Bhanushali was found lacking in displaying the required SEBI registration details and maintaining a complaint register at his office. Mr Bhanushali admitted to not having pre-trade confirmations for certain trades, further highlighting procedural lapses.
Despite the stockbroker's defence that its APs were familiar with the clients involved and that the trades were conducted in good faith, SEBI emphasised the importance of strict adherence to its regulations. The failure to maintain proper documentation and verify client identities during trades posed significant risks of unauthorised transactions, undermining market integrity.
Consequently, SEBI imposed a penalty of Rs2 lakh on Nirmal Bang Securities, reinforcing its stance on the need for strict adherence to compliance measures.
