Before diving into the recent SEBI actions, let’s first know a little about who Authorized Persons (APs) are.
In simple terms, APs are like sub-brokers who bridge the gap between a broker and its clients. They play crucial roles, such as bringing in new clients, and executing buy and sell orders on behalf of clients using trading terminals.
To prevent any fraudulent activities, it’s the responsibility of stock brokers to closely monitor their APs and take action if any rules or regulations are violated.
SEBI, on the other hand, conducts regular inspections to ensure that these APs are operating smoothly. If SEBI uncovers any misconduct, it holds the respective stock broker accountable.
Recently, SEBI conducted inspections of Sharekhan and Anand Rathi and found some concerning activities by their APs that violated the guidelines. As a result, both brokers faced penalties.
What Was the Concern?
According to SEBI’s findings, two APs of Anand Rathi and three APs of Sharekhan were found using their trading terminals at locations other than their registered addresses.
The rules are clear: if an AP needs to use a terminal at a different location, that location must be registered and approved by the exchange. However, these APs overlooked this requirement, that led their respective brokers to pay hefty penalties.
Sharekhan’s Response
Sharekhan provided some explanations for the violations:
- Multiple Offices: One AP had offices in four different locations. On a particular day, a registered person from one office visited another and logged into the terminal from an unregistered location for monitoring purpose. Also, AP placed only order in that location.
- No Harm, No Benefit: Another AP who used the terminal in the location other than registered address didn’t make any benefit out if and also had caused no harm to the client.
- Approved Users Punched Order in Different Terminal: In the third case, because of the absence of respective terminal users, client order was punched by approved user using different terminal.
Although no fraudulent activities were reported, these actions violated SEBI’s rule that any use of a terminal outside the registered address must be reported and approved by the exchange. Sharekhan’s negligence towards activities of its AP in three different cases led to a ₹4 lakh penalty from SEBI.
Anand Rathi’s Violations
The violations by Anand Rathi’s APs were somewhat similar but also had additional concerns:
- Operating from Abroad: One AP logged in and placed four orders using a terminal in the UK. However, these orders were for his family members.
- Unregistered Terminals: Another AP had registered two terminals but was operating a third one from a non-registered location as well.
- Missing Call Recordings: This AP also failed to maintain call recordings for 42 clients, lacking the necessary evidence regarding order placements.
Due to the misuse of trading terminals and the failure to keep call recordings, SEBI imposed a more significant penalty of ₹11 lakhs on Anand Rathi.
Did SEBI Take Right Decision?
When it comes to using trading terminals at locations other than the registered address, it’s a clear violation of the regulations.
However, since none of the APs misused the terminals for personal gain and provided reasonable justifications, SEBI might have closed it by giving a warning, particularly in Sharekhan’s case.
For Anand Rathi, though, SEBI’s action seems more justified as AP missed keeping the record of calls with clients.
These recordings are crucial as they ensure that all orders placed on the terminal are discussed and approved by the client, serving as vital evidence for compliance and protection against fraudulent activities.
In all SEBI’s decision was partially correct but these decisions set an example for other stock brokers and their APs to maintain and follow the compliance with all its regulations not only to avoid penalties but to build credibility and gain trust of their clients.
