Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs8 lakh on Gwalior-based Raghunandan Capital Pvt Ltd, a registered stock broker following an inspection that uncovered several violations of the SEBI (Stock Brokers) Regulations, 1992, and various SEBI and stock exchange circulars.
The violations include incorrect reporting of balances in client assets, incorrect reporting of balances of clients' funds, incorrect reporting of enhanced supervision data, non-settlement of clients' funds and non-provision of documents, delay in issuance of daily margin statements and passing of penalty to clients on account of short or non-collection of upfront margins.
In an order, Barnali Mukherjee, SEBI's adjudicating officer (AO), says, "Raghunandan Capital has been penalised earlier for not settling the running account balances of its clients. As a SEBI registered intermediary, Raghunandan Capital was under a 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."
The inspection was conducted jointly with the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX) and took place between 7th to 8 November 2023.
SEBI's findings revealed significant discrepancies in the stockbroker's reporting practices. Raghunandan Capital was found to have reported inaccurate balances in its client assets reports for the weeks ending 22 September 2023 and 29 September 2023. These inaccuracies included over-reporting bank balances by Rs27,300 due to uncleared cheques, under-reporting of collateral balances, and mismatches in the aggregate debit and credit balances across exchanges.
Additionally, the broker failed to reconcile the value of its securities deposited with clearing corporations, and non-funded bank guarantees were under-reported. These discrepancies violated SEBI's and BSE's circulars on accurate reporting.
Further violations were identified in the client fund reports where discrepancies in the value of collateral deposited with exchanges were noted. On multiple dates in April 2023, mismatches of up to Rs37 lakh were found in cash and cash equivalents, and discrepancies in non-cash collateral ranged from Rs9 lakh to Rs10 lakh. The stockbroker did not reconcile these discrepancies with the relevant clearing members or clearing corporations, violating the provisions outlined in SEBI's circulars.
Another area of concern was Raghunandan Capital's failure to report unutilised collateral with clearing corporations for the weeks ending 1st, 8th and 15 September 2023. The broker relied on incomplete data files, which led to inaccurate collateral calculations, violating SEBI and NCDEX circulars.
Raghunandan Capital also failed to settle funds for inactive clients in 254 instances out of 10,563 verified cases and did not settle client funds on the first Friday of the quarter in 560 instances out of 4,411 verified cases. Moreover, retention statements were not sent to clients within the required five working days, and the company failed to provide logs for SMS dispatch at the time of settlement. These actions violated SEBI's regulations on client fund settlements.
In terms of the issuance of daily margin statements (DMS), Raghunandan Capital delayed issuing them to clients, with delays ranging from one to 14 days across 370 trading days. Although the broker cited holidays, server issues, and client requests as reasons for the delays, no supporting evidence was provided to justify the delays. It resulted in violations of SEBI's rules mandating timely issuance of margin statements.
Additionally, Raghunandan Capital was found to have improperly passed on penalties to clients for short or non-collection of upfront margins in 34 instances. Despite regulatory guidelines stating that penalties for margin shortfalls cannot be passed on to clients, the broker imposed penalties in all 34 cases, breaching SEBI's Code of Conduct and margin collection regulations.
