Even as the regulator has tightened the rules to prevent misuse of investors’ funds and shares, yet another brokerage firm—Anugrah Stock & Broking Pvt Ltd—seems to be teetering on the brink, despite a reprieve from the Securities Appellate Tribunal (SAT) on 17th August against action by the National Stock Exchange (NSE).
The action by NSE and SAT has panicked the clients of Anugrah and its associates who claim to ‘manage’ well over Rs1,000 crore. The clients have drawn a blank in reaching associates who channelled their investments. Worried investors have been flocking to the Vile Parle office (in Mumbai) of Anugrah and sending emails and letters demanding answers. Almost everyone has hit a wall. Importantly, reliable sources say, Anugrah’s “trading on the exchange is not so high to warrant the kind of loss in his formal book.” So what is going on?
Until a couple of days ago, the Securities and Exchange Board of India (SEBI) seemed to be unaware of what is going on, although a simple search shows that both Anugrah and one of its associates, Teji Mandi Analytics Pvt Limited, ought to have been on the regulator’s radar since they have both been fined in the past.
NSE began to investigate various brokers following the post-COVID turmoil in the market and especially after the sudden and voluntary closure of India Nivesh.
The Exchange discovered that Anugrah was running an unauthorised derivatives advisory service (DAS) through an associate firm called Om Shri Sai Investments (OSSI) since 2017. The service was shut down in 2019. It had collected Rs165.10 crore from investors. NSE issued a show-cause notice on 17th July and asked Anugrah to respond by 27th July. A day before the deadline ended, the firm asked for more time. So NSE shut down Anugrah’s trading rights in all derivatives segments (futures, options, commodities and currency) from 3rd August.
The brokerage firm rushed to SAT and won a reprieve of sorts. SAT decided, in its wisdom, that there was no tearing hurry for NSE’s ex-parte action after giving just 10 days. So, it ordered trading rights to be restored immediately. NSE had to fall in line and restart Anugrah’s trading on 17th August.
But the Tribunal also imposed two conditions on Anugrah. It asked the firm to deposit Rs165 crore with the NSE within two weeks, while granting three weeks to file a response. The next hearing has been posted for 14th October and Anugrah cannot enrol any fresh clients in the derivatives segment until then nor can it continue DAS through OSSI. (Misc. Appln No244 of 2020- Urgent Application, Anugrah Stock & Broking Ltd vs NSE)
A Google search however, reveals that Anugrah had been fined Rs5 lakh on 20 March 2019, for failing to settle client accounts, especially those of inactive clients. This pertained to an inspection in April 2017. This is exactly the issue that is being fixed from September by SEBI’s new rules. Did SEBI not find any links to unauthorised derivatives advisory being run by associates such as Teji Mandi and Om Shri Sai at that time?
It is important to note that there were no investor complaints then. This shows that when the going is good, investors are happy to provide a blanket power of attorney (POA) to brokers and their associates without too much checking.
Teji Mandi Analytics and the Rs1,000 Crore Question
In response to a tweet of mine on this issue, several investors have sent me documents, POAs, presentations and contracts which reveal that the biggest associate of Anugrah was Teji Mandi Analytics Pvt Ltd. Most advisory accounts were opened by Teji Mandi, whose link with Anugrah comes up in a simple Google search. Worryingly, this firm too has gone incommunicado and investors attempting to check on their funds have got no response.
Teji Mandi’s latest marketing presentation to investors claims to have Rs800 crore under the service. Here are screen shots that show that it has earned annualised returns of over 19%. Is it any wonder that investors had no complaints? The latest balance sheet and audit report for 31 March 2020, shared by an investor, also show no cause for concern.
Between Teji Mandi and Om Shri Sai Investments as well as Anugrah’s direct clients and fund raising, the firm clearly had operations of over Rs1,000 crore.
While SEBI claims to have highly sophisticated software that offers real-time tracking, much of what I found out about Anugrah was through a most basic Google search and a question posed on twitter. On 25 May 2009, SEBI had barred Anugrah from buying and selling securities.
While these fines are nothing more than a slap on the wrist, SEBI apparently does not bother to flag such entities or monitor their activities and compliance, despite spending on highly sophisticated systems that allegedly provide real-time trading information. Surely, a powerful and hugely funded regulator ought to be able to do a lot more than what an open Google search provides?
Anugrah has been taking short-term loans for its operation as well as bank guarantees and an overdraft. Here, too, its record has been patchy. In December 2017, CRISIL reported that the issuer was ‘not cooperating’ with the rating agency, despite consistent follow-up and had, hence, ‘migrated’ the rating. The agency warned investors, lenders and all other, which included a bank guarantee of Rs14 crore and an overdraft facility of Rs11 crore.
Anugrah had obtained a rating from ICRA to raise Rs13 crore in short-term fund-based bank lines. All this is relevant in the context of the court case/arbitration involving India Nivesh’s Rs100 crore ‘funded’ fixed deposit. Is this another case of raising funds by pledging a borrowing as margin/bank guarantee? I have emailed Anugrah as well as Teji Mandi for answers and will post their response, if any, when I get them.
Here is some feedback from investors, whose names have been changed. Arvind Sinha thinks Teji Mandi is a sub-broker of Anugrah and is “running some algo based trading in F&O segment (only options of Nifty and Bank Nifty) across all clients.” He says, “We are not asking for losses to be repaid, but what about the balance that is with the firm? It looks like the broker has gone insolvent,” since his many emails and calls have not elicited any response.
This investor had demanded a closure of his trading account and alleges that he has “identified fake contract notes that raise concerns about fraud, misrepresentation and unauthorised trading” by Teji Mandi and/or Anugrah. This investor says that even after NSE restored trading, he was not allowed to trade even in the cash segment by Anugrah and Teji Mandi. He alleges that shares have not been transferred back from the pool account in contravention of SEBI rules (SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated 25 February 2020) and a request to unpledge shares and return them to his depository account has been ignored.
Another investor, using a pseudonym, says that a group of investors has collectively invested over Rs19 crore through the associate of Anugrah (who he does not name but is in all probability it is Teji Mandi Analytics). Some of them have found stocks missing from their demat accounts, which have probably been used for margin payments and not credited back. Their follow-up to have their accounts closed and funds/shares transferred has also drawn a blank. This group included an investor who put in Rs1.55 crore along with his wife as recently as in March 2020 through Teji Mandi Analytics.
The big question now is whether Anugrah is able to cough up Rs165 crore in the next five days, as SAT has ordered. But investors are panicking; NSE is watching developments closely and the regulator remains silent.
The Securities and Exchange Board of India (SEBI) has extended till September 24 the enforcement of regulatory measures aimed to contain market volatility amid the coronavirus pandemic.
The measures, first introduced in March, include limits on positions that can be taken up by investors in the futures and options (F&O) segment.
"On review of the COVID-19 pandemic-related situation, it has been decided that the regulatory measures introduced vide SEBI press release dated March 20 shall continue to be in force till September 24, 2020," a SEBI statement said on Wednesday.
The March 20 circular said that for stocks in the F&O segment meeting the criterion of 'average daily price high low' variation percentage (during the last 5 trading days) at more than or equal to 15 per cent, the market wide position limit (MWPL) may be revised to 50 per cent of the existing levels.
Furthermore, the regulator also set certain conditions under which mutual funds or foreign investors can place bets on the index futures.
The market regulator also mandated that short positions in index derivatives shall not exceed the holding of stocks by Mutual Funds/FPIs/Trading Members/Clients.
Similarly, long positions in index derivatives shall not exceed the holding of cash, government securities, T-Bills and similar instruments by Mutual Funds/FPIs, as per the measures announced in March.
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Market regulator Securities and Exchange Board of India (SEBI) has slapped a penalty of Rs50 lakh on National Stock Exchange (NSE) for changing its compensation policy for top executives without taking prior approval from SEBI. This change had happened in 2012, however, it allowed both Ravi Narain and Chitra Ramakrishna to walk away with a sum running into crores of rupees for leave encashment.
SEBI has not ordered any clawback and the penalty itself is a fraction of the benefit claimed by two top officials when they quit the Exchange nearly five years ago. NSE’s former managing director (MD) and chief executive officer (CEO) Chitra Ramakrishna was paid Rs1.54 crore just as leave encashment for additional 168 days without approval from SEBI. The SEBI order does not mention benefits earned by other senior management, if any, except Chitra Ramakrishna and Ravi Narain, former MD & CEO of NSE.
Ironically, while Ms Ramakrishna has walked away with compensation that is three times the penalty charged, it is the Exchange that is being penalised not the beneficiaries. This is significant in NSE’s case, since Ravi Narain and Chitra Ramakrishna were part of the founding team and have been in senior management ever since the Exchange started operations 27 years ago. This only means that SEBI has condoned the action while pretending to fine the Exchange. SEBI is also making no effort to close the investigations and disciplinary proceedings with regard to the high frequency trading (HFT) scam, meanwhile the Exchange has seen a large number of broker defaults eroding investor confidence.
In the order, Amit Pradhan, adjudicating officer of SEBI, says, "...the material brought on record shows that the failure of taking prior approval from SEBI before making a change in its policy, which was approved by the compensation committee of NSE or board of NSE on 26 November 2012 may be a single instance but, it has led to violation on repeated instances i.e. encashment of accumulated ordinary leave by Ravi Narain and Chitra Ramakrishna over and above the limit of 360 days at the time of his retirement and her resignation, respectively."
"Taking into consideration all the facts and circumstances of the case including the aforesaid 15J factors and exercising the powers conferred upon me under section 15I of the SEBI Act read with rule 5 of the adjudication rules, I hereby impose a monetary penalty of Rs50 lakh on NSE under section 15HB of the SEBI Act," the order says.
SEBI says, during eight months and two days of FY16-17, NSE permitted an additional encashment of 168 days or a total of 528 days to Chitra Ramakrishna on cessation of her service from the bourse. The extra remuneration paid to Chitra Ramakrishna for encashment of the additional 168 days of leave was Rs1.54 crore.
Mr Pradhan also observed that, "...the terms and conditions of the managing director (MD)’s compensation has been changed by way of the decision dated 26 November 2012 of the compensation committee without obtaining prior approval of SEBI under regulation 27(4) of the SECC Regulations. Further, there is no material to prove that the said changes in the terms and conditions of the compensation structure which benefitted its senior management including its MD was communicated to SEBI for its approval. It has also not been brought to my notice by NSE that they have even applied for post facto approval of SEBI under regulation 27(4) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations (SECC Regulations) about the said change. Thus, the allegation against NSE to such extent stands established and therefore, NSE violated regulation 27(4) of the SECC Regulations."
The SEBI order talks about two allegations in this matter. First, policy change approved by the compensation committee or NSE board without prior approval from SEBI and, second, the encashment of accumulated ordinary leave to NSE’s MD & CEO Ravi Narain and Chitra Ramakrishna over and above the limit of 360 days, without taking prior approval from the market regulator.
The minutes of the meeting of the compensation committee of NSE held on 26 November 2012, mentions that – “...as per the staff policy, accumulated ordinary leave is allowed to be encashed at the time of leaving the organisation subject to a limit of 360 days. The Committee discussed the matter and decided that in case of senior management (i.e. senior vice - president and above including working directors), the accumulated ordinary leave be allowed to be encashed without limit at the time of retirement.”
"This change in policy dated 26 November 2012, with respect to encashment of accumulated ordinary without any limit for senior management at the time of retirement is in sharp contrast to the policy on 1 October 2012, which prescribed that a resigned employee is entitled to encash only a maximum of 360 days. I am, therefore, of the view that the argument of NSE that the change in policy for encashment of accumulated leave without any limit for senior management including MD by the compensation committee of NSE on 26 November 2012, is within the blanket term –'such other benefits to MD & CEO as are made available by the Company to other members of the staff from time to time' is devoid of any merit and rejected hereby," the order passed by the adjudicating officer says.
There is no mention about who were the members of the compensation committee who took this decision and whether NSE’s high-profile board bothered to follow up to check whether SEBI's permission had been obtained.
Earlier on 19 July 2017, the ministry of finance had sent a letter to SEBI referring to a news report, which relied upon the annual report of NSE, stating that former MD and CEO of the NSE, earned about Rs44 crore in three years during which she held the aforesaid position at the stock exchange and that she earned Rs23 crore as total remuneration in the last eight months of her tenure.