Mumbai-based Arcadia Share & Stock Brokers Pvt Ltd has been declared as defaulter and expelled by National Stock Exchange (NSE). The Exchange has asked investor-clients of Arcadia Share & Stock Brokers to submit within three months, their claims online or in physical format. Arcadia's managing director (MD) Antony Sequeira and director Narendra Brahmbhatta are disqualified by NSE from holding any position as director or partner in any listed company. Further, NSE also barred 1,395 authorised persons affiliated with Arcadia from dealing in the markets in that capacity.
The NSE notification says, “All members are hereby informed that the following trading member has been expelled from the membership of the exchange under Rules 1 and 2 of Chapter IV of the NSEIL Rules and has been declared as defaulter under provision 1 (a) of Chapter XII of Exchange Bye laws from 2 July 2021.”
“Further, as per the Exchange records, the Authorised Persons affiliated with the aforesaid trading member, are henceforth not authorized to deal in that capacity,” NSE says.
In a public notice, NSE says, "The constituents of Arcadia Share & Stock Brokers are hereby advised to lodge claims, if any, in prescribed claim form, against the member within three months from the date of this notice. All claims submitted by investors will be considered for processing if found due and payable in accordance to rules, byelaws, regulations and guidelines of the exchange, SEBI circulars and regulations and the maximum compensation limit per invest is Rs25 lakh out of the Investor Protection Fund (IPF)."
Earlier in February 2021, NSE had withdrawn trading rights to the brokerage for failing to adhere to its regulatory provisions, was found reporting incorrect data about clients’ funds, cash, and cash equivalent balances, during the weekly enhanced supervision.
An order passed by the NSE's member and core settlement guarantee fund committee (MCSGFC), had stated, "Based on data collected by the forensic auditor, the amount payable to the clients was about Rs47.51 crore as on 31 December 2020, whereas the clients payable as reported in the cash and cash equivalent balances submission by Arcadia as on the same date were to the tune of around Rs11.17 crore. This clearly establishes that Arcadia has been intentionally filing incorrect information and data with a view to conceal the true position of the availability of clients’ funds and securities."
During September and October 2020, NSE received an alert about an off-market transfer of securities by Arcadia. In its offsite supervision, NSE found off-market transfer of securities worth Rs5.51 crore to clients’ demat accounts without enough securities available in the client collateral account maintained by Arcadia on behalf of the clients. The Exchange then asked Arcadia for clarification through 16 emails sent between September and December 2020.
The NSE committee observed that Arcadia did not submit a satisfactory response (on the grounds of COVID-19 pandemic and personal and family problems), despite several follow-ups and reminders from the Exchange and kept seeking extensions for submission of data.
In the meantime, NSE also received an alert from depositories regarding invocation of pledged securities by banks from proprietary demat accounts of Arcadia between October 2020 and December 2020 worth Rs20 crore.
Arcadia provided limited information to NSE. Officials of NSE visited the brokerage office thrice times in December and obtained relevant supporting documents.
Based on the data taken from Arcadia’s back-office, NSE observed certain mismatches in the clients’ fund balances between trial and client ledger balances. NSE then decided to conduct forensic audit of Arcadia's books and appointed KPMG for the purpose.
A preliminary analysis of the data submitted by KPMG revealed that there was a shortfall of clients’ funds of about Rs27 crore against the non-related client payables of around Rs47.51 crore for around 10,000 clients, as on 31 December 2020.