UNDER REGULATION 13(4) OF SEBI (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002, AGAINST BANGALORE STOCK EXCHANGE FINANCIALS LTD., MEMBER, THE STOCK EXCHANGE, MUMBAI AND NATIONAL STOCK EXCHANGE HAVING SEBI REGISTRATION NOs. INB011074136 AND INB231074130.

1.1 M/s. Bangalore Stock Exchange Financials Ltd. (hereinafter referred to as “the broker”) is a member of The Stock Exchange, Mumbai (“BSE”) and National Stock Exchange (“NSE”) registered with SEBI as a stock broker under section 12 of SEBI Act, 1992 with SEBI Registration No. INB011074136 and INB231074130.

1.2 Inspection of the books of accounts, documents and other records of the broker was carried out by SEBI for the period 21.10.99 to 17.3.02 and certain irregularities found to have been committed by the broker were observed.

2.1 In view of the above, an Enquiry Officer (EO) was appointed vide SEBI Order dated August 22, 2003 under Regulation 5(1) of SEBI (Procedure for Holding Enquiry) Regulations, 2002 (hereinafter referred to as the “said Regulations”) to inquire into the irregularities observed during the inspection of books of accounts of the broker. The EO after conducting the enquiry in terms of the said regulations submitted his report on 09.06.05 recommending for imposition of a minor penalty of censure on the broker.

2.2 A copy of the Enquiry Report was sent to the broker on 14.06.05, in terms of Regulation 13(2) of the said Regulations, advising it to show cause as to why appropriate penalty including the penalty as recommended by the Enquiry Officer should not be imposed.

2.3 The broker replied vide letter dated 13.07.05 and submitted that since all the observations/suggestions made in the inspection report have been fully complied with by BFSL by the target date of May 31, 2003; the broker may be acquitted without imposing any penalty.

3.1 I have carefully considered the findings of inspection, Enquiry and the submissions made by the broker and my observations are as follows :

The broker activated the terminals of sub-brokers and allowed them to trade before receiving SEBI Registration Certificate. The broker submitted that the applications were taken personally to SEBI and in many cases registration numbers were allotted to sub-brokers and conveyed orally though actual certificates were printed at a later date. In most cases, the delay was 1 to 5 days. In two cases, there had been a delay of one month due to mix up of papers. The EO found that though in most cases, the registration had been completed, there was clear violation of the relevant provisions in three cases.

The broker submitted that margin certificates for the pending quarters were collected from the concerned sub-brokers in the form of self certificates. The EO found that self-attestation was not a substitute for Auditor’s certificate and hence the broker has violated SEBI Circular No.SMDRP/Policy/Cir-6/2001 dated 1.2.2001.

It was alleged that contract notes were not signed by authorized signatories. The broker replied that now they are being signed by authorized persons. The EO found that the broker had rectified the defect subsequent to inspection.

It has been alleged that the broker provided turn over limit of 40 times of the BMC and the additional capital deposited by the sub-broker instead of 33 times provided by BSE and NSE. The broker submitted that NSE & BSE provided turnover limit of 33 times of BMC and additional capital for the value of trades whereas the limit of 40 times provided by the broker was for value of order. The broker further stated that only one among four orders were converted into trades. The EO did not find the broker’s explanation satisfactory. The EO observed that there was a possibility that orders placed by the broker were well above the limit prescribed by BSE or NSE and all of them converted into trades and in that case the trades would be above the prescribed turnover limits.

e) Permitting use of BMC deposited with the promoting Stock Exchange for fixing gross exposure limit and turnover limit.

The broker admitted the contravention and stated that they regret the mistake in computation of exposure limits against the BMC. The broker was therefore guilty of violating SEBI Circular No.SMD-II/POLICY/CIR-37/99 dated 26.11.99.

f) As regards the other allegations like failure to maintain BMC in the ratio of 25:75, collection of shares towards BMC, bifurcation of BMC and additional capital, deposits with ICSE were wrongly used, non-deactivation of terminals of defaulting sub-brokers, the EO did not find the broker guilty of any violations.

4.0 On a careful perusal of the charges, findings of inspection and enquiry and the submissions made by the broker, I have no substantive reason to differ with the findings of the EO.

5.1 Now, therefore, in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 read with Regulation 13(4) of the said Regulations, I hereby censure M/s. Bangalore Stock Exchange Financials Ltd., member, BSE and NSE, bearing SEBI Registration No. INBo11074136 and INB231074130.