Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs3 lakh on Delhi-based SS Corporate Securities Limited (SSCL) for violations in client order recording and compliance practices.
In an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI, says, "I find that the noticee was under a statutory obligation to abide by and comply with the provisions of the circulars and directions issued by SEBI and stock exchanges, which they failed to do during the inspection period. The very purpose of the said provisions is to deter wrongdoing and promote ethical conduct in securities market. The noticee 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.”
SEBI conducted an inspection of SSCL in July 2023, reviewing its operations from 1 April 2022 to 30 June 2023. This inspection revealed several instances where SSCL failed to comply with SEBI's stockbroker regulations and related circulars.
The primary violations involved SSCL's failure to establish proper systems for recording client orders and maintaining accurate documentation. A major issue was the absence of a functioning call recording system to verify the placement of orders during the inspection period. SEBI reviewed 100 sample trades, and for 79 of these trades, confirmation slips were provided after the orders had already been placed directly violating SEBI’s regulations that require brokers to have evidence of a client’s order before executing trades.
In response, SSCL claimed that after April 2023, it had introduced a centralised voice recording system. It also presented affidavits from clients affirming that trades were placed as per their instructions. However, SEBI deemed these affidavits insufficient, as they did not meet the requirement of maintaining accurate pre-trade records. Additionally, SSCL could not produce properly signed order slips from clients before the trades were executed, further weakening their compliance claims.
During a personal hearing, SEBI questioned SSCL about the absence of client order slips during the inspection. SSCL defended itself, saying that the inspection team had not specifically requested these documents. SEBI dismissed this argument, emphasising that SSCL had a responsibility to maintain and present all relevant documentation to prove compliance with regulations.
SEBI's review of SSCL’s submissions revealed additional inconsistencies. One order slip, for instance, contained post-trade information, indicating it was created after the trade had occurred—once again showing SSCL's failure to maintain accurate records of client orders in accordance with SEBI’s guidelines.
Another significant issue involved SSCL's visitor registers, which were submitted as evidence of client visits. SEBI found that the handwriting in these registers appeared uniform, raising concerns about fabrication. When SEBI questioned four authorized personnel under oath, they admitted to falsifying the registers and forging client signatures to create the illusion of legitimate client visits and order placements.
SSCL, later, submitted affidavits from these personnel stating that they had not tampered with the registers. However, SEBI dismissed these conflicting statements due to their lack of credibility. Ultimately, SEBI concluded that SS Corporate Securities failed to maintain necessary proof of order placements and violated SEBI regulations.
