Anand Rathi Share & Stock Brokers Penalised Rs5 lakh by SEBI for Multiple Regulatory Violations

Moneylife Digital Team 31 January 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) imposed a penalty of Rs5 lakh on Anand Rathi Share & Stock Brokers Ltd (ARSL) for multiple violations. The inspection, conducted jointly with exchanges and depositories, discovered several breaches of SEBI's circulars and regulations.

Key violations identified during the inspection included misusing client funds, non-maintenance of daily reconciliation statements, incorrect margin reporting, unauthorised trades, and a lack of appropriate client order evidence.

In an order, Amar Navlani, adjudicating officer (AO) of SEBI, says, "I note that Anand Rathi Share & Stock Brokers, being a SEBI registered intermediary, was required to comply with the extant applicable provisions of laws, which SEBI is duty bound to enforce. The broker failed to comply with the provisions of law and such failure and non-compliance accordingly needs to be dealt with a suitable penalty."

One of the primary violations noted by SEBI was the misuse of client funds. In six out of 43 sample instances, Anand Rathi Share & Stock Brokers used funds from credit balance clients to meet debit balance clients obligations or for its own purposes. These amounts ranged from Rs22.07 lakh to Rs16.36 crore, with one instance involving a significant misuse of Rs90.75 crore for margin obligations. SEBI identified this as a violation of the Securities Contracts Regulation Act (SCRA) and related circulars, particularly highlighting incorrect fund calculations and misutilisation of fixed deposits.

Further scrutiny revealed non-compliance with the requirement to maintain daily reconciliation statements. Despite ARSL transferring Rs14,019 crore between accounts, the broker failed to maintain the requisite reconciliation documents during the inspection period. This breach was significant enough to warrant an additional violation notice.

Margin reporting errors were also highlighted, as ARSL incorrectly reported margin collections in nine out of 300 sample instances, amounting to Rs20.45 lakh. These discrepancies violate SEBI's circular, which mandates accurate reporting of margin data. Despite arguments from Anand Rathi Share & Stock Brokers regarding technical issues and clerical errors, SEBI concluded that the violations were unjustified, and the errors were deemed a clear violation of reporting requirements.

Additionally, SEBI identified several cases of unauthorised trades executed without clients' consent, including 28 instances where order confirmations were not provided and documentation was not submitted despite repeated reminders. This failure to provide adequate evidence of client orders in six out of 21 sample cases further reinforced regulatory non-compliance.

The final area of concern was the incorrect reporting of clients' debit balances under risk-based supervision (RBS), with a discrepancy of Rs10 lakh due to a system issue that led to the exclusion of certain clients from the BSE MFSS segment.

These multiple violations of SEBI's regulatory framework have led to the imposition of a Rs5 lakh penalty on Anand Rathi Share & Stock Brokers.

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