Tribunal upholds Sebi's restraint on SMC Global Securities

The Securities Appellate Tribunal on Friday upheld an order by market regulator Security and Exchange Board of India (Sebi) restraining SMC Global Securities from taking up any new assignments in view of the violations related to reporting of margin and delay in collection of dues from trading members.

Sebi had found that SMC Global Securities failed to collect requisite margin money from two trading members Sunchan Securities and Ganga Yamuna Finvest, and that it had allowed them to take additional positions.

Accordingly, in August 2013, Sebi had prohibited SMC Global Securities from taking up any new assignment or contract and launching a new scheme for a period of three months following which the entity had filed an appeal with SAT against the ruling.

In an order on Friday, SAT ruled that it has found "no reason to interfere with the (Sebi's) impugned order, which is hereby upheld, and the appeal is dismissed".

Among others, SAT noted that brokers Sunchan and Ganga Yamuna continued to default in fulfilling their margin obligation towards SMC Global Securities and the entity went on giving excessive exposure to the two trading members "which has been rightly viewed seriously by Sebi".

The tribunal observed that margin money played an important role in containing risks which are inherent in the functioning of any capital market.

"Owing to its non-adherence, huge market crashes have been witnessed all over the globe in the recent past," SAT said.

"It is, therefore, pertinent for all market players to maintain the sanctity of margining as a risk management tool while dealing in securities, be it in the cash or in the F&O (Futures & Options) segment," it added.

After receiving complaints from investors, Sebi had directed the NSE to examine the matter. Besides, the regulator had also initiated a probe.

Sebi, in its probe, found that SMC Global Securities had collected margins in non-permissible forms from the trading members which resulted in short collection along with wrong reporting of margins.

This shortfall in the collection of required margins from trading members indicated that the same was funded by SMC Global Securities to maintain the margin obligations.

In its submissions to SAT, Sebi said due to the default by the two trading members "the stock exchanges had to redress investor complaints/claims by utilising funds from the Investor Protection Fund to make good the claims of the clients of Sunchan and Ganga Yamuna".