July 02, 2019

Citibank Moves SAT, Questions Powers Of SEBI And Stock Exchanges’ To Annul Trades Already Executed

[ By Bobby Anthony ]


Citibank has moved the Securities Appellant Tribunal (SAT) questioning the powers of the Securities & Exchange Board of India (SEBI) as well as stock exchanges to annul legitimate trades already executed on the exchange platform.

The foreign bank was a counter party to option contracts traded by a Mumbai-based broker Allied Financial Services, which had illegally used mutual fund units it never owned as collateral margin for such fraudulent transactions.

Citibank counsel Janak Dwarkadas argued that the underlying trades purchased by the bank had come up for expiry in June and failure on the part of a broker (Allied Financial) shouldn’t impact this settlement.

However, IL&FS’s lawyers argued that Allied Financial Services fraudulently carried out the transaction by providing mutual fund units as securities which were originally owned by its clients Dalmia Cement (Bharat) and OCL India.

If these trades are not annulled and come up for settlement, IL&FS would be liable to pay Rs 380 crore out of its own pocket as margins for the trade, IL&FS lawyers argued.

IL&FS Securities Services, which had cleared the trades of Allied, wants the trades to be annulled since it would have to pay for margins out of its pocket as regulatory agencies have frozen mutual fund units which were used as margins.

While Citibank doesn’t have much direct exposure to the trade, it had offered the contracts to some of its clients in its capacity as a broker to foreign investors.

Incidentally, the development has come after the Supreme Court of India recently stayed the settlement of these contracts until SAT and Bombay High Court deliver verdicts on whether the trades can be annulled.

Meanwhile, a SAT division bench has reserved its order after hearing the arguments.

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