SEBI Slaps Rs3 Lakh Penalty on SMC Global Securities for Regulatory Violations

Moneylife Digital Team 30 October 2024

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs3 lakh on SMC Global Securities Ltd for multiple regulatory violations.

In an order, Amar Navlani, adjudicating officer (AO) of SEBI, noted that the record does not quantify the gain or loss to investors from SMC Global Securities' violations or indicate a pattern of repeated defaults. However, twice in the past, in 2019 and in 2011, SMC Global was penalised by SEBI for issues with the broker's trading activities. Despite SMC Global Securities' claim of no investor complaints, it failed to comply with SEBI's mandatory regulations.

SEBI conducted a joint inspection of SMC Global Securities from 1 April 2022 to 31 May 2023.

This inspection aimed to assess various compliance aspects, including the quarterly settlement of client accounts, verification of unique client codes (UCC), the use of client bank accounts for purposes other than specified, margin collection and reporting, terminal verification and certifications, and the control systems over branches and authorised persons (APs).

It also evaluated the broker's engagement in fund-based activities and examined complaints related to unauthorised trading, misuse of client funds, and non-settlement of accounts.

After the inspection, SEBI shared its findings with SMC Global Securities on 31 August 2023. In response, SMC submitted a letter on 18 September 2023 addressing the observations. SEBI then conducted a post-inspection analysis (PIA) for further investigation.

The PIA revealed several significant violations attributed to SMC Global Securities. SEBI found irregular email and mobile number records when comparing the member back office database with the UCC records maintained by various exchanges. Instances were identified where a single email ID was linked to multiple clients, and similarly, one mobile number was associated with several clients.

In particular, inconsistencies were observed across different exchanges. For the National Commodity and Derivatives Exchange (NCDEX), 11 email IDs and seven mobile numbers were inconsistent with the exchange's UCC records. Similarly, in the case of the National Stock Exchange (NSE), details of 232 email IDs and 340 mobile numbers were inconsistent. Some of these email IDs and mobile numbers did not appear in SMC's back-office database despite being reflected in the exchange records.

Similar discrepancies were noted for the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange (MCX), raising concerns about the accuracy of the data maintained by these exchanges and the potential impact on trading activities.

SMC Global Securities argued that the irregularities were minor compared to its 160,000 clients, claiming mismatches were negligible. SEBI countered that the sample inspection included all clients, rendering the broker comparison invalid. Thus, SMC Global Securities arguments were dismissed for not addressing data integrity and compliance issues.

Further complicating matters, SMC Global Securities submissions regarding data modification and technical glitches were deemed vague and unsupported by adequate documentation.

Although the broker asserted that modifications to email IDs and mobile numbers had been made, they failed to provide sufficient proof that the discrepancies had been addressed.

SEBI noted that accurate UCC data is critical for regulatory compliance and effective client communication. Thus, attributing discrepancies to generic technical issues without documented evidence was considered unmeritorious.

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