SAT stays SEBI order against IIFL Securities, stock rises over 5%

Shares of IIFL Securities surged 5.22% today after the appellate tribunal SAT (Securities Appellate Tribunal) stayed the SEBI order against the company from taking new clients for two years until further orders, thereby providing interim relief to the brokerage firm.

The latest development comes after the capital market regulator SEBI (Securities & Exchange Board of India) passed an order and restrained IIFL Securities from onboarding new clients over violations of the code of conduct. This was followed by an appeal by IIFL to the appellate tribunal.

The case pertains to SEBI's inspection of the books of the accounts of IIFL during the period of January 30 to February 03, 2014. The inspection was carried out to examine whether IIFL was working in compliance with the provisions of the SEBI 1993 Circular as well as the SEBI 2008 circular on the segregation of funds and securities of clients.

SEBI had alleged that IIFL "flagrantly violated" the provisions of the SEBI 1993 Circular in various ways to "clear disregard" the basic premise of the said circular both in letter and spirit in complete defiance of regulatory instructions. It disposed of the two inquiry proceedings initiated against the company after six inspections of its affairs.

As per SEBI, 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 allegedly mixing clients’ funds with its own funds before using those mixed funds for its own proprietary usage.

"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."

The company in its response assured the regulator to have taken certain corrective steps to stop wrongdoings from happening in the maintenance of its books of accounts so as to avoid such breaches in the future.

Meanwhile, the IIFL stock bolstered to rise to its intra-day high of ₹65.79 amid the latest SAT decision. The stock has given a 2.09% return in the past week, while a 9.66% return in the past month. The stock, however, has fallen 7.81% in the one-year period.