Shares of IIFL Securities plunged over 18% in early trade on Tuesday as investors rushed to sell their stake in the company after SEBI barred the broking firm from taking new clients for two years. The Securities and Exchange Board of India (SEBI) passed this order after it conducted multiple inspections of the books of account of IIFL for the period April 2011 to January 2017.

Weighed down by the development, IIFL Securities shares opened 17% lower at ₹59 against the previous closing price of ₹71.15 on the BSE. In the first two hours of trade so far, the smallcap stock declined as much as 18.5% to ₹58, with 3.7 lakh shares changing hands over the counter as compared to the two-week average volume of 0.72 lakh stocks.

With the market capitalisation of ₹1,880 crore, the stock trades 27% lower than its 52-week high level of ₹79.65 touched on September 15, 2022. It has risen 20% against the 52-week low of ₹48.23 hit on March 29, 2023.

In the last one year, IIFL Securities has delivered a negative return of 7.5%, while it has fallen over 10% in a six-month period. The counter has risen 6.5% in a month, while it has dropped nearly 11% in a week.

IIFL Securities shares were hammered on Tuesday after SEBI’s order against the company. The market regulator in its order said IIFL "flagrantly violated" the provisions of the SEBI 1993 Circular in various ways to "clearly disregard" the basic premise of the said circular both in letter and spirit in complete defiance of regulatory instructions.

The regulator in its order said that the company (IIFL), firstly didn’t assign its accounts appropriate nomenclature wherein it was keeping clients’ monies so as to clearly label them as ‘client accounts’. Additionally, it was mixing clients’ funds with its own funds before using those mixed funds for its own proprietary usage, said the order. 

"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 Noticee at least during the period of April 01, 2011, to January 31, 2017." 

The order said IIFL claims itself to be a large broker having thousands of retail clients and a number of institutional clients, to whom it provided services. "In such a case, responsibility to follow the provisions of Securities Laws falls all the more on its shoulders as the final consequences of misuse of funds of its clients by a large broker like the Noticee would have been far graver as compared to the violations committed by some small level brokers."

Meanwhile, IIFL Securities in its response said that “the order pertains to inspections carried out for different periods from April, 2011 to January, 2017, which was prior to the issuance of Enhanced Supervision Circular dated September 26, 2016 by SEBI, which was made effective from July 1, 2017”.

“The SEBI Order applies the said Circular retrospectively even while confirming that after the Circular becoming effective there has been no non-compliance with the same. The said Order records “I find no instance of misuse of clients funds by the Noticee placed before me which has occurred subsequent to implementation of Enhanced Supervision Circular dated September 26, 2016,” it said in the BSE filing.

The company further stated that the SEBI’s order does not affect its current business with the existing clients, adding that it is in the process of preferring an appeal before Securities Appellate Tribunal (SAT).

“Further, the company has always met all its obligations towards exchanges and clients on time. The company has always followed a compliance first approach and carried out business in full compliance in letter and spirit with extant laws and regulations,” it added.

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