SAT stays Sebi’s order against IIFL Securities

SAT stays Sebi’s order against IIFL Securities

The Securities Appellate Tribunal (SAT) on Tuesday stayed Sebi’s order against IIFL securities from onboarding new clients for two years.

Following this development, IIFL Securities share price rose 6% to Rs 65.90 intra-day, before settling at Rs 62.70.

Sebi had examined the books of accounts of IIFL Securities from April 2011 to Jan 2017 and found several alleged violations of its rules including failure to segregate its own funds from clients’ funds, misused credit balances in clients’ funds for the benefit of clients who had debit balances and use of client’s funds for its own purposes.

In response, IIFL securities filed an appeal on Sebi’s order with Securities Appellate Tribunal (SAT). The company in an exchange filing said the order pertains to inspections carried out for different periods from April, 2011 to January, 2017, which was prior to the issuance of enhanced supervision circular dated September 26, 2016 by Sebi which was made effective from July 1, 2017.

“The Sebi order applies the said circular retrospectively even while confirming that after the circular becoming effective there has been no non-compliance with the same,” said IIFL Securities.

As per Sebi’s order, IIFL had not named 26 of its 45 clients’ accounts as ‘client account’ in bank record despite issuance of a warning by BSE.

The regulator found out that IIFL was following a complicated procedure of transfer of funds wherein it had opened four accounts with different banks and all were named ‘control accounts’. The funds were regularly being transferred from client bank accounts and clients’ dividend accounts to the pool or control accounts of IIFL Securities, which were managed and controlled by IIFL Securities as its own bank account.

“At the same time, funds were transferred from IIFL Securities’ own bank accounts to the same control accounts, where clients’ funds were also being collected, and then to the settlement account of the stock exchange and clearing house,” stated Sebi’s order.

However, the regulator had recognised corrective measures taken by the broking firm. IIFL had submitted to Sebi that it has transferred its proprietary trades to a completely different stock broking entity and has restructured its business wherein all investment-related activities have been transferred to the holding company.

The company said the order does not levy any monetary penalty, hence, there are no direct financial implications. However, it may lose the opportunity to expand its outreach.