Market regulator Securities and Exchange Board of India (SEBI) has cancelled stock broker licenses of Kaynet Finance Ltd and Kaynet Commodities Pvt Ltd. Inquiry by designated authorities had recommended cancellation of the broking license since both the entities are no longer members of any stock exchange as brokers or trading members. Two separate orders were issued by Sujit Prasad, executive director (ED) of SEBI.
In his order, the ED says, “In the cases, I note that the designated authority, after conducting an inquiry in the matter, has recommended that the certificate of both Kaynet Commodities and Kaynet Finance as stock brokers with registration no. INZ000042538 and NB/F231276339 respectively may be cancelled, as they are no longer a member of any stock exchange as brokers or trading members. I also that the procedure as required for cancellation of registration as stipulated in the Intermediaries regulations has been followed.”
Kaynet Commodities was a registered broker in SEBI and a member of Multi Commodity Exchange of India (MCX). After a joint inspection by SEBI and MCX, the broker was declared as defaulter by the exchange, with the market regulator announcing further investigation in the matter. SEBI then issued a show cause notice (SCN) to Kaynet Commodities.
Sanjay Shah, director of Kaynet Commodities contended that the company has already been awarded the maximum punishment of termination from the membership by the MCX and hence any further proceedings by SEBI would be double jeopardy. He argued that cancelling the broker license under SEBI is against constitutional doctrines.
However, the Mr Prasad, the ED, pointed out that membership given by the stock exchange is a prerequisite to the registration given by SEBI.
He pointed out that as per IA regulations 2008, a stock broker is liable for any action including suspension or cancellation of its certificate of registration as a stockbroker if it ceases to be a member of a stock exchange. “Kaynet Commodities has been declared defaulter by a stock exchange and not re-admitted as a member within a period of six months.”
In the case of Kaynet Financial, a joint inspection was conducted by MCX, SEBI, BSE, National Stock Exchange (NSE), and Central Depository Service Ltd (CDSL). Kaynet Finance was a member of NSE and a registered stockbroker under SEBI. After the joint inspection, NSE recommended declaring the entity as a defaulter. A show-cause notice was issued by SEBI to the entity.
While contenting to the show cause notice issued by SEBI the entity relied on the argument of double jeopardy in relation to the constitution.
But this was dismissed by SEBI based on the IA regulations 2008 and its relevant sections which state that a stockbroker shall be liable for any action including suspension or cancellation of its certificate of registration as a stockbroker if it ceases to be a member of a stock exchange; or has been declared defaulter by a stock exchange and not re-admitted as a member within a period of six months.