SEBI Imposed Penalty of Rs. 10 lakhs on Angel Broking for Flouting Regulatory Norms

SEBI Imposed Penalty of Rs. 10 lakhs on Angel Broking for Flouting Regulatory Norms

The Securities and Exchange Board of India (SEBI) has levied a penalty of Rs. 10 lakhs on Angel Broking Limited for failing to comply with several operational regulations and circulars in its capacity as a stock broker and a depository participant.

A Comprehensive Joint Inspection of the functioning of Angel Broking Limited (hereinafter referred to as ABL/Noticee) was conducted by SEBI along with the Stock Exchanges and Depositories from 7 December, 2020 to 28 January, 2021. A show cause notice was issued to Angel Broking in September 2022.

SEBI found that the funds raised by pledging client's securities were used for other than the respective clients' obligation by Angel Broking. The Adjudicating Officer Amit Kapoor noted that Angel Broking had pledged securities of clients who have a credit balance in their ledger and the misutilization was Rs. 32.97 crores.

The Board further observed that ABL had failed to perform the actual settlement of funds of inactive clients during the inspection period. The market regulator recorded 300 such instances and the non-settled amount was Rs. 43.96 lakhs.

SEBI also observed that Angel Broking had not actually settled funds of clients who had not traded in the last three months. The market regulator found 1081 instances and the non-settled amount was Rs. 16.65 lakh.

The Board further found that ABL had retained the value of funds and securities to the extent of the value of turnover executed on the date of settlement in the cash market segment after 16 January, 2020, (85 instances out of total 200 instances observed and deemed non-settled amount was Rs. 10.26 crore).

Angel Broking had omitted in performing the periodic reconciliation between DP accounts and back-office records. A total quantity difference of Rs. 44.72 lakhs having an absolute value of Rs. 1226.73 crore, was recorded by the SEBI.

The SEBI observed, “The Noticee in reply to the show cause notice submitted that in respect of 1 out of 3 clients, the Noticee had provided exposure to the clients beyond T+2+5, as alleged in the SCN days due to a technical glitch. Further, in respect of 2 clients, there was no exposure beyond T+2+5 days, as alleged in the SCN. In these circumstances, it is submitted that the charge of noncompliance with Clause 2.6 of Annexure of SEBI Circular dated September 26, 2016 r/w Clause 2(d) of SEBI Circular dated June 22,2017 ought not to be concluded against the Noticee and a considered and lenient view ought to be taken.”

The broker submitted to the inspection team that MTM generated from the position in the derivative segment was considered towards granting exposure. However, Angel Broking failed to provide any evidence to corroborate its submission. Hence, it was established that the Noticee had not complied with Clause 2.6 of Annexure of SEBI Circular dated 26 September, 2016 read with Clause 2(d) of SEBI circular dated 22 June, 2017.

The Adjudicating Officer ruled, “the Noticee as a SEBI registered Intermediary, is under a statutory obligation to abide by the provisions of the SCRA, SEBI Act and Depositories Act. The Noticee is also bound to cooperate and be cautious during regulatory procedures such as inspections. However, the Noticee has not been diligent in abiding by all the provisions of law under the respective Acts, has not fulfilled all its statutory obligations as a stock broker and depository participant and has not been cautious in providing data during inspection. Considering all the above facts related to the matter, I am inclined to levy an appropriate penalty on the Noticee, which should act as a deterrent. I note that adjudication proceedings have been initiated by SEBI against the Noticee in the past also and penalty imposed on the Noticee in more than one matter.”