The case stems from SEBI's investigation into suspected front-running of Axis Mutual Fund trades between 1 April 2020 and 31 March 2022.
One of the key findings was that Pace Stock Broking Services, a type-3 stock broker, failed to provide complete order and trade connection logs, including the mapping of IP addresses to specific user IDs and dealers. SEBI held that these records are mandatory under its circular governing algorithmic trading and system audit requirements and are essential for regulatory investigations.
The regulator also found that the broker improperly used Kaleeswaran Pandian's credentials to obtain trading terminal IDs and user IDs from the National Stock Exchange (NSE), even though he was not functioning as an approved dealer during the relevant period. According to SEBI, the discrepancies continued from September 2015 to April 2022, with the broker repeatedly renewing or updating the terminal IDs without detecting or correcting the mismatch.
Pace Stock Broking Services argued that the discrepancies resulted from a clerical copy-and-paste error during the upload of dealer details, and that the actual trades were executed by another dealer, Rajeev Ranjan. The broker maintained that there was no intention to mislead the regulator or to derive any financial benefit, and described the lapses as procedural.
The market regulator, however, rejected these explanations. Jai Sebastian, adjudicating officer (AO) of SEBI, observed that a broker managing more than 2,500 CTCL IDs was expected to have stronger internal controls. The repeated renewal of incorrect user IDs over several years demonstrated systemic weaknesses rather than isolated procedural errors, the order noted.
The regulator further held that the broker's reliance on judicial precedents requiring proof of intent was misplaced. Citing the Supreme Court's ruling in the Shriram Mutual Fund case, SEBI reiterated that penalties under the SEBI Act arise once a statutory violation is established and do not require proof of mens rea or wrongful intent.
After examining the evidence, SEBI concluded that Pace Stock Broking Services had violated SEBI's circular on maintaining trading logs, NSE's user ID registration framework, the Stock Brokers Regulations, and provisions of the SEBI Act relating to furnishing information and maintaining records. The regulator also noted that the broker had previously faced regulatory action, including a ₹6 lakh penalty in the NSE co-location matter and an administrative warning.
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