IIFL Securities shares crack 18% as Sebi bars broker from taking fresh clients for 2 years

Shares of IIFL Securities cracked 18 per cent in Tuesday's trade trade after the Sebi prohibited the broker from onboarding new clients for the next two years. The markets regulator said IIFL flagrantly violated the provisions of SEBI 1993 Circular in various ways to clearly disregard the basic premise of the said circular both in letter and spirit in complete defiance of regulatory instructions.

The IIFL, the order stated, firstly did not assign its accounts appropriate nomenclature wherein it was keeping clients' money so as to clearly label them as 'client accounts'. Additionally, it said, it was mixing clients' funds with its own funds before using those mixed funds for its own proprietary usage.

"In the end, it was using funds of its credit balance clients to not only fund trades of its debit balance clients but also to fund its own trades. This clearly demonstrates an utter disregard to the provisions of SEBI 1993 Circular by the Noticee at least during the period of April 01, 2011, to January 31, 2017."

The IIFL Secuirties sock fell 18.48 per cent to hit a low of Rs 59 on BSE. 

The order stated that IIFL claims itself to be a large broker having thousands of retail clients and a number of institutional clients, to whom it provided services. In such a case, the order said, responsibility to follow the provisions of Securities Laws falls all the more on its shoulders as the final consequences of misuse of funds of its clients by a large broker like the IIFL would have been far graver as compared to the violations committed by some small level brokers.

In a filing to BSE, IIFL Securities insists the order does not affect company’s existing business with the existing clients and said the company is in the process of preferring an appeal against the said order before Securities Appellate Tribunal.

It insisted that the company has always met all its obligations towards Exchanges and clients on time. "The company has always followed a Compliance First approach and carried out business in full compliance in letter and spirit with extant laws and regulations," it said.

IIFL Securities 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.

 

The said order records “I find no instance of misuse of clients funds by the noticee placed before me which has occurred subsequent to implementation of Enhanced Supervision Circular dated September 26, 2016;” IIFL Securities said. 

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