Order against Magnum Equity Broking Ltd

1. BACKGROUND

Securities and Exchange Board of India (SEBI) had conducted inspection of the books of accounts and other documents of Magnum Equity Broking ltd, having SEBI Registration No. INB010957235, a Broker affiliated to the Stock Exchange Mumbai. The findings of the inspection were communicated to Broker Magnum Equity Broking ltd (hereinafter referred to as “Broker”) vide letter dated October 17, 2003. The broker furnished its reply vide letter dated November 13, 2003.

ADJUDICATION PROCEEDINGS

 

Based on the violations indicated in the inspection report, and pursuant to the broker’s reply the Whole Time Member, Shri T. M. Nagarajan in exercise of the powers conferred upon him under Section19 of the SEBI Act 1992 (hereinafter referred to as the “Act”) read with Section 15-I of the Act and Rule 3 of SEBI (Procedure for holding Inquiry and imposing Penalties by Adjudicating Officer) Rules, 1995, appointed the undersigned as the Adjudicating officer vide order dated March 22, 2004, to enquire into and adjudge the alleged violations committed by the broker.

3.   SHOW CAUSE NOTICE AND HEARING

A show cause notice dated June 10, 2004 under Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995 was issued by the undersigned to the broker to show cause as to why penalty under the provisions of the Act read with Rule 5 of SEBI (Procedure for holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 should not be imposed upon him in view of the alleged violations. The broker submitted his reply to the show cause notice. An opportunity for personal hearing before the undersigned was given to the broker. The broker, during his personal hearing on November 24, 2004 explained his position with respect to the findings of inspection report and the alleged violations of SEBI Regulations / Rules / Guidelines. The broker’s submission below includes his written reply as well as submission during the personal hearing.

 

4.0       FINDINGS AND CONSIDERATION

In view of the above, I now deal with the submissions made by the broker before me for the purpose of this adjudication my considerations.

(a) The broker dealt with unregistered Sub-brokers in violation of Section 15HB of the Securities and Exchange Board of India Act 1992 read with regulation 26 (xiv) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

There were two such sub brokers namely D K Stock Consultants and Daffodill Equity & securities and they had applied for the sub broker registration with SEBI and meanwhile pending registration started business with the broker. They got registered with SEBI with in two months of starting business with the broker.

I find that the Sub brokers ultimately got registered with SEBI. Thus the broker’s dealings with these entities before their registration appear to be of a technical violation. A lenient view is being taken in this regard.

(b) The broker has failed to maintain proper client Registration form and permitted trading prior to filling of CRF. Certain deficiencies in CRF have been observed which are in violation of SEBI circular No. SMD/Policy/IECG/1-97 dated February 11, 1997.

The broker has stated that these clients had given CRF duly signed in time. The problem was with the franking of agreement. The clients could not get agreement franked in time because of long queue at Stamp Office. Now they are following a practice of giving client pre-stamped agreement along with CRF and accordingly the delays on documentation are avoided.

I find the above lapses are temporary and technical violations and there are very few such instances. The broker has rectified these deficiencies by following a practice to avail a pre-stamped agreement along with CRF. Hence, I take a lenient view, in this regard.

 (c) The broker dealt with unregistered Remisier in violation of SEBI Circular No SMD/Policy/circular/3-97 dated March 31, 1997.

The broker has stated that these entities have introduced clients to them for once and thereafter these clients were dealing directly with them and issuing contract notes to the client. They had paid incentive to these entities for the client introduction. Some of these entities were corporate whom BSE does not register as Remisiers. They have now stopped giving incentive to any such unregistered entities.

I accept with the submission of the broker in this regard.

5. IMPOSITION OF PENALTY ORDER

The submissions of the broker have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under section 15 HB of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the Securities & Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, I hereby impose a penalty of Rs.15,000 only (Rupees Fifteen Thousands) on the broker. The broker shall pay this amount of penalty of Rs. 15,000/- by way of demand draft in favour of "SEBI - Penalties Remittable to Government of India" payable at Mumbai within 45 days of receipt of this order.

The said demand draft should be forwarded to Ms. Usha Narayan, Chief General Manager of SEBI, MIRS Department at SEBI,  World Trade Centre, 29^th Floor, Cuffe Parade, Mumbai 400 005

      In terms of Regulation 6 of the SEBI (Procedure for holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, a copy of this order is served on the broker and a copy is submitted to the Board.

 

Date:  December 30, 2004
Place: Mumbai	Adjudicating Officer