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The Securities and Exchange Board of India (SEBI) has levied fines on stock brokers IIFL Securities and 5 Paisa Capital for inaccuracies in managing client data. IIFL Securities has been fined Rs 3 lakh, while 5 Paisa Capital has been fined Rs 2 lakh. These penalties were issued in separate orders dated July 30, citing the failure of both brokerages to act with due diligence and care as market intermediaries.
The core issue revolves around the incorrect uploading of unique client codes (UCCs) in the Multi-Commodity Exchange of India (MCX) platform. SEBI’s examination revealed that both brokerages had uploaded erroneous client data in the UCC database. Specifically, some clients were incorrectly recorded as domiciled in Sikkim. This misrepresentation is significant because residents of Sikkim are exempt from paying stamp duty on commodity derivative transactions.
IIFL Securities incorrectly listed 18 clients as domiciled in Sikkim, while 5 Paisa Capital made the same error for 22 clients. These inaccuracies were part of a broader pattern of mismatched entries. During the examination period from July 2020 to June 30, 2022, IIFL Securities made mismatched entries for 12,101 investors, or 2.95% of their clients on MCX. This included the 18 clients wrongly identified as being from Sikkim. Similarly, 5 Paisa Capital made mismatched entries for 14,494 clients, or 4.81% of their clients on MCX, including the 22 clients wrongly identified as being from Sikkim.
The SEBI orders noted that the material available on record did not quantify any disproportionate gain or unfair advantage obtained by the brokerages due to these errors. Additionally, SEBI has not claimed that either brokerage gained any unfair advantage.
The order against IIFL Securities highlighted that the brokerage had previously been penalized for violating the provisions of the code of conduct under the Stock Brokers Regulations of 1992. This repetitive nature of the violation factored into the penalty decision. In contrast, the order against 5 Paisa Capital acknowledged that the brokerage had not been penalized before for similar violations. Hence, the violation was not considered repetitive in nature.