June 01, 2009
PR No. 173/2009
Order in the matter of Non-Compliance of SEBI Order Dated April 23, 2009 in the matter of Pyramid Saimira Theatre Ltd., by Anugrah Stock & Broking Pvt. Ltd., Member, BSE and NSE
Anugrah Stock & Broking Pvt. Ltd., Member, BSE and NSE, vide Order dated May 22, 2009 has been prohibited from buying, selling or dealing in securities in any manner whatsoever with immediate effect until further orders, since the broker prima facie, did not exercise due skill, care and diligence while executing trades as required in terms of clause A(2) of Schedule II of Code of Conduct for Stock Brokers under SEBI (Stock Broker and Sub-brokers) Regulations, 1992 and aided and abetted a restrained person to violate SEBI�s ex-parte ad-interim Order dated April 23, 2009 in the matter of Pyramid Saimira Theatre Ltd. of restraint imposed on him.
What has transpired is that the act of the broker has led to the breach of SEBI Order dated April 23, 2009 in the matter of M/s. Pyramid Saimira Theatre Ltd., the investigation of which had prima facie unearthed evidence of money laundering operations and its nexus to the stock market. The investigation in the matter of Pyramid Saimira Theatre Limited (PSTL), prima facie has revealed a widely distributed network of entities that had joined hands in breaching market integrity. The investigation in that case was atypical in that the discovery of this network brings more sharply into light the fragility of the market system, and the risks of it being derailed by a few hundred entities colluding for this purpose.
It is seen that in the normal circumstances the account of the restrained person should have been closed by the broker from April 24, 2009. But the broker actually closed the account of the said debarred client only after the receipt of BSE�s letter on May 11, 2009. Again the broker has himself admitted that the first level of check (Client Level) was removed negligently on May 20, 2009. Further, the broker has also admitted that the second level of check (Scrip wise Level) was removed negligently on May 21, 2009 and the trade executed. The broker has stated that the Account was again closed on May 21, 2009 in the evening post market hours after realizing the error.
The broker had imposed two levels of security. After a sequence of queries to the surveillance department from the dealer, these restrictions were withdrawn. This invites the inference that the broker (or one of its employees) could have colluded willingly with the restrained client. But, it would be difficult at this stage to come to a conclusion with any degree of certainty. A further detailed enquiry is necessary to verify, if in fact there was any such collusion. It was further also observed that that the documents supporting the proof of his permanent/ registered office address and his correspondence address provided by the said restrained client to the broker did not belong to him, thus, defeating the very purpose of Know Your Client policy of ensuring that only legitimate and bonafide clients are accepted.
It prima facie appears that the processes at the broker�s Risk Management level were so lax and casual that almost everybody and anybody in the Risk Management Department could possibly tinker with the system. There has been a serious breach of the Regulations and the Codes applicable to the Broker, which has resulted in a restrained entity in violating the order of restraint imposed by SEBI and selling his entire holdings. There prima facie also appears to be gaps between the broker�s version and the statement given to SEBI by its dealer. The overwhelming evidence indicates that the broker failure of the risk management system went far beyond the conduct that can be characterized as negligent, inadvertent or accidental behaviour.
In view of the above, Whole Time Member, Dr. K.M. Abraham, vide order dated June 1, 2009, has issued the following directions:
a) Shri Suresh B. Menon, Chief General Manager, Securities and Exchange Board of India, is hereby appointed in terms of Section 11 (2) (i) of the
Securities and Exchange Board of India Act, 1992 to examine the following and report on:
- the compliance of Anugrah Stock & Broking Private Limited with what has been asserted by it in its submissions and the affidavit,
-
the adequacy of the Risk Management System in the trading and surveillance infrastructure established by Anugrah Stock & Broking Private Limited and
-
the possibility of collusion between Anugrah Stock & Broking Private Limited and Mr. Banty Dinesh Shah in assisting the latter to violate the ad interim order dated April 23, 2009, based on the assessment of the system level checks in place.
b) Shri Suresh B. Menon shall submit a Report on (a) (i) above within two days from the date of this order.
c) The Report on items (a) (ii) and (iii) shall be submitted within two months from the date of this order.
d) In doing so, Shri Suresh Menon may use the assistance of the officers of Securities and Exchange Board of India, as he may deem fit.
e) The plea made by the stock broker to revoke the ad interim order restraining him from further activities shall be considered immediately on receipt of the Report as ordered in (b) above.
Mumbai
June 01, 2009
|
