Sebi Imposes Rs 9 Lakh Penalty on Reliance Securities for Breaching Market Norms

The Securities and Exchange Board of India (Sebi) has imposed a fine of Rs 9 lakh on Reliance Securities. This penalty is due to breaches of market regulations and stock broker rules. The decision follows an inspection by Sebi, along with the NSE and BSE, of Reliance Securities' authorised persons' records and accounts.

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The inspection aimed to verify compliance with stock brokers rules, NSEIL Capital Market regulations, and NSE Future & Options trading norms. This review covered the period from April 2022 to December 2023. Following the inspection, Sebi issued a show cause notice to Reliance Securities on August 23, 2024.

Inspection Findings and Violations

Sebi's 47-page order highlighted several violations by Reliance Securities and its authorised persons. These included inadequate systems for recording client orders, discrepancies in terminal locations, and insufficient segregation at shared offices with other brokers. The inspection also revealed that Reliance Securities failed to maintain necessary order placement records for offline clients linked to its authorised persons, Jitendra Kambad and Naitik Shah.

Reliance Securities admitted to these lapses but claimed corrective actions were taken. These measures included deactivating terminals used by unapproved users. However, Sebi noted that unauthorised personnel were operating these terminals, violating norms that require only approved users to handle them.

Office Sharing and Unauthorised Activities

The inspection further uncovered inadequate segregation at offices of Reliance Securities' authorised persons. At some locations, these authorised persons were found sharing premises and infrastructure with those of other brokers, breaching regulations. Sebi observed that this lack of proper supervision enabled unauthorised activities, such as receiving payments from clients for non-broking purposes.

Reliance Securities argued that some discrepancies were unintentional and claimed it took remedial steps like deactivating unapproved terminals and strengthening internal controls. However, Sebi dismissed these arguments, stating that brokers must maintain compliance consistently, and corrective measures after inspections do not excuse past violations.

By engaging in these activities, Reliance Securities violated NSEL CM regulations, Stock Brokers rules, and NSEL FO norms. Sebi emphasised the importance of retaining verifiable evidence of client orders to ensure transparency and prevent unauthorised trades.