SEBI slaps Rs 11 lakh fine on IIFL Securities for violation of its rules

In an order dated August 21, the Securities and Exchange Board of India (SEBI) noted that the broker had disbursed Rs 17.43 crore to 136 clients as part of a "fund-based agreement," which appeared to involve borrowing money from clients, reported Moneycontrol.

SEBI found that IIFL Securities was maintaining two ledgers: a Margin Deposit Ledger and a Trading Ledger.

During an examination of the first ledger and a sample of 20 clients, SEBI officials discovered that the broker was repeatedly collecting funds from these clients and paying them interest at a mutually agreed rate.

The order revealed that Rs 15.51 crore was paid to the sample 20 clients, with the interest rate being approximately 4-5 percent per annum.

Although clients had instructed the broker to create fixed deposits, the ledgers indicated that no such deposits had been made.

Instead, the clients' funds deposited in the Trading Ledger appeared to be used for trading and meeting margin requirements, with the broker compensating clients for the use of their money.

The order also revealed that certain clients were receiving funds from IIFL Finance, a non-banking financial company (NBFC), and subsequently transferring the same amount to the broker.

The broker was then paying an interest of approximately 11 percent for the use of these funds.

Other violations cited in the order included incorrect reporting of client ledger balances, exceeding the maximum allowable exposure limit for the Margin Trading Fund, incorrectly reporting a ledger balance in the daily margin sent to two clients, amounting to Rs 1.8 crore, passing penalties for short reporting onto clients, and the short collection of margins.

The SEBI order said, "I find that the Noticee (IIFL Securities) was under a statutory obligation to abide by and comply with the provisions of the Circulars / 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. 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. The violations as established above certainly deserve imposition of penalty."