Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs9 lakh on Reliance Securities Ltd for violating market norms and stockbroker regulations. This action follows a thematic inspection conducted by SEBI, along with the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), which uncovered multiple lapses in compliance with regulatory requirements.
SEBI found multiple violations committed by Reliance Securities, including non-maintenance of adequate systems for recording client order placements and discrepancies regarding the existence of terminals at inspected locations versus the information reported to exchanges by the noticee. Additionally, there was no proper segregation or demarcation maintained at the authorised person (AP) office.
Further violations included the failure of Reliance Securities to ensure its APs were engaged only in permitted activities, neglect in inspecting the books of active registered APs as per applicable guidelines, and non-reporting of active client details mapped to APs. The company also entrusted dealer terminals to clients other than APs and exhibited inadequate supervision of its APs.
In an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, says, "It cannot be ignored that Reliance Securities was under a statutory obligation to abide by the provisions of Stock Brokers Regulations, SEBI circulars, exchange regulations or circulars issued thereunder, which it failed to do during the inspection period (IP). Although Reliance Securities has stated that it is taking various corrective steps, irregularities were committed by Reliance Securities during the aforementioned IP."
SEBI’s inspection revealed that Reliance Securities had inadequate systems to record client orders, failing to maintain necessary evidence like physical documents or phone recordings. APs such as Naitik Shah and Jitendra Kambad did not keep order slips for offline clients. Reliance Securities' explanation, citing visitor registers or familial relationships, was deemed insufficient and led to violations of SEBI and NSE Regulations.
The investigation also highlighted the mismanagement of trading terminals. Several terminals assigned to APs were missing from registered locations, and some were being operated by unauthorised users. For instance, of six NSE terminals allocated to Jitendra Kambad, only five were located, and two were operated by unapproved individuals. Similarly, Naitik Shah had 20 terminals assigned, but only 14 were accounted for, with two operated by unauthorised users. These discrepancies extended to BSE terminals, and Reliance Securities failed to notify exchanges about changes in approved users, further breaching regulatory requirements.
Operational segregation among APs was found lacking. APs Jitendra and Ravi Kambad operated from the same location, with a third party managing their activities on a shared desktop, in violation of SEBI’s mandate for clear demarcation of AP activities. Similar issues arose with Naitik Shah, whose operations were intertwined with another AP from a different broking firm.
Reliance Securities also allowed APs to engage in unauthorised activities, such as handling funds and securities directly with clients. SEBI found that Jitendra Kambad made payments in 23 of 31 instances, including loans and mutual fund commissions which contravenes regulations that restrict APs to receiving fees solely from brokers.
Further violations included the stockbroker’s failure to upload client details linked to APs to exchange databases. Reliance Securities claimed thousands of active clients for APs like Jitendra Kambad and Naitik Shah but failed to report this data, citing technical issues without providing adequate documentation.
SEBI also discovered that Reliance Securities had entrusted trading terminals to clients of APs, a direct violation of SEBI and NSE circulars prohibiting brokers from allowing unregistered users to access CTCL (computer-to-client link) or dealer terminals. The company’s defence that these individuals were dealers was deemed insufficient, as their activities clearly breached regulatory guidelines.
The inspection found that Reliance Securities failed to supervise the proper updating of CTCL user details with exchanges. Several users who were not employees of APs had access to these terminals, further compounding the company’s regulatory breaches, SEBI says.
