IIFL Sec Dip 18% After SEBI Bans Firm From Signing New Clients

IIFL Securities opened today at a downside level of Rs 59.00 apiece on the BSE which logs in a fall of 17.07% from the previous close of Rs 71.15. During the early trade the stock was seen trading at Rs 60.95 with a downside gap of 14.34%. The sell-off pressure seen in the stock a day after SEBI barred the broking firm from signing new clients for the next 2 years.

The inspection of the books of accounts of IIFL was conducted during the period of January 30 to February 03, 2014 by the market regulator and during the inspection SEBI found that IIFL failed to segregate its own funds from clients' funds, misused credit balances in clients' funds for the benefit of clients having debit balance and inappropriate designation of the client bank accounts.

During the inspection period from April 1, 2011 to June 30, 2014, and on 30 trading days between April 1, 2015 and January 31, 2017, IIFL funded trades for debit balance clients using funds from credit balance clients on a total of 795 trading days out of the 809 trading days that were subject to inspection. During the 42 trading days of the investigation period, which spanned from April 2011 to June 2014, the brokerage firm additionally utilised the funds from clients with credit balances to support its own proprietary trades.

"In the end, it was using funds of its credit balance clients' to not only fund trades of its debit balance clients but also to fund its own trades. This clearly demonstrates an utter disregard to the provisions of SEBI 1993 Circular by the Noticeeat least during the period of April 01, 2011 to January 31, 2017," said SEBI in a statement.

"Taking into account the aforementioned data, I do not find any difficulty in holding that the noticee (IIFL) by misusing the monies of credit clients to fund the trades of clients having debit balance in its records as well as for its own proprietary trades, has violated the provisions of ... Sebi 1993 circular," Sebi whole-time member S K Mohanty said in his 64-page final order.

Milan Sharma, Founder, 35North Ventures said "It's very unfortunate that the broker of this repute has been found indulging in activities that are against investor rights. Even after so many incidents like karvy etc brokers are resorting to such practices it is time that the broker community introspects and create self regulations other wise how so ever regulation come these incidents will keep repeating and investors will lose trust in brokers and the business will move towards bank broker like Icici securities and axis securities etc."

Commenting on the outlook of the stock, A R Ramachandran, Co-founder & Trainer - Tips2trades said "Despite the news of SEBI barring IIFL securities of on boarding new clients, the stock price has recovered quite well with strong support at 485 on the Daily charts. Till Daily resistance of 525 is not broken on a closing basis, investors should avoid buying."

Nirav Karkera, Head of Research, Fisdom said "The regulator's recent directive, though seemingly extreme, underscores their proactive approach towards investor protection. This move is undoubtedly a clear and robust signal to the industry, which may cause distress among participants but is likely to result in enhanced processes and compliance measures. Regarding the situation with IIFL securities specifically, it remains a developing episode, with the outcome hinging on the company's appeal to the SAT. There appears to be no reason for disruption to existing clients, and since the directive is seen as proactive, investors may not have suffered any actual damage from the reported lapses. In the immediate aftermath, stock prices have reacted negatively, and investors in the stock are expected to remain indecisive until further updates flow in."

The Securities and Exchange Board of India (SEBI) has banned IIFL Securities from onboarding new clients for two years for violation of the code of conduct regulations of stock brokers however this is an old case which had already discounted in price and new business won't be there but existed will (I think). Today price trading at 500 which almost 45% lower to it All Time High. RSI and MACD both are giving indication for good buying opportunity. 430 should be very strict stop loss levels for the target's expectancy of 552/580/600/630/650/670 and 700, according to V.L.A. Ambala (SEBI Registered Research Analyst), Stock Market Today (SMT).

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