SEBI slaps Rs 18 lakh fine on two trading members

Markets regulator Sebi on Friday slapped fines totalling Rs 18 lakh on CPR Capital Services Ltd and PRB Securities Pvt Ltd for various violations with respect to using National Stock Exchange’s co-location facility.

There were allegations of preferential access to Tick-By-Tick (TBT) data feed being given by the exchange to certain trading members, following which Sebi probed the matter. The two entities were among the trading members that were identified for comprehensive investigation for primary and secondary server connects.

Fines of Rs 12 lakh and Rs 6 lakh have been imposed on CPR Capital Services and PRB Securities, respectively, Sebi said in two separate but similarly-worded orders on Friday.

A comprehensive investigation, including a forensic audit, of the two entities were carried out and reports submitted to the regulator in 2019. Ernst & Young LLP had done the probe of CPR Capital Services and that of PRB Securities was carried out by Deloitte Touche Tohmatsu India LLP.

The investigation period varied from June 2010 to November 2014, depending on the segments. It was June 2010 to April 2014 for Futures and Options (F&O), October 2010 to November 2014 for Cash Market (CM) and January 2012 to April 2014 for Currency Derivatives (CD).

As per NSE’s guidelines, secondary source for TBT data is to be used in the event of non-availability of TBT primary source and trading members should not routinely connect to the secondary server.

It was found that the two entities continuously logged into the secondary server in F&O, CM and CD segments without any valid reason.

In the orders, Sebi said the secondary server was meant for use in case of non-availability of data from the primary source.

By circumventing the primary source on a regular basis, the entities ”engaged in conduct which undermined the trading system set up to provide fair and equitable access to all brokers who connected to it,” Sebi said in the orders.

The watchdog also noted that CPR Capital Services continued to connect to the secondary servers despite NSE reprimands.

In the case of CPR Capital Services, Sebi also said that it had failed to provide complete information to the investigating authority during investigation.

”The noticee has connected to the secondary server in the CM, F&O and CD segments during the relevant period even after reprimand from NSE and also failed to provide complete information to the IA (Investigating Authority) during investigation,” Sebi’s Adjudicating Officer Prasanta Mahapatra said in the order passed against CPR Capital Services.

While passing the order against PRB Securities, Mahapatra said the noticee was not reprimanded by NSE for the violations, unlike some other brokers who had more frequent secondary server connections.

”However, it is established that the noticee has failed to comply with aforesaid guidelines and hence violated the aforesaid provisions of Code of Conduct specified under Stock Broker Regulations, 1992 and PFUTP Regulations, 2003,” the order said.

The noticee is PRB Securities and PFUTP refers to Prohibition of Fraudulent and Unfair Trade Practices.

Sebi looked into the matter after it had received multiple complaints pertaining to allegations of malpractices with respect to the co-location facility being provided by NSE.

Also Read: SEBI fines YES Bank Rs 25 crore for coaxing customers to buy riskier bonds

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