SEBI Fines Reliance Securities For Regulatory Non-Compliance

Default in the settlement of clients' funds was amongst the most grievous lapses. Between April to June 2021, Reliance Securities also failed to settle funds quarterly in 122 out of 127 inactive customer accounts amounting to Rs 24.92 lakh. Since September 2021, the brokerage failed to settle dormant clients' funds for 30 calendar days in 10,102 cases for 8,527 client codes. The total amount stood at Rs 28.52 crore. These were in contravention of SEBI circulars of September 2016 and June 2021.

Mismatching of client ledger balances was observed in seven cases with variations between Rs 47.7 lakh and over Rs 1 crore. Client PAN details were incorrectly fed into proprietary accounts in four cases and client holdings were incorrectly allocated in two cases. Such findings reflect weaknesses in internal monitoring and record keeping.

SEBI observed incorrect reporting of end-of-day margins in three client codes, amounting to Rs 93,262. In 19 instances, the broker had provided margin trading exposure beyond the 50 per cent cap of its net worth and borrowings. Moreover, client-level exposure exceeded regulatory limits in 20 cases. Both actions breached clauses of SEBI’s June 2017 circular on margin trading frameworks.

The firm failed to offer adequate proof of order placement in certain trades and over 82 investor complaints were resolved beyond the permitted 30-day period, violating the Stock Brokers Regulations. SEBI also found that the broker has not posted updated investor charter and grievance data on its website since September 2022, compared to a December 2021 circular.

The firm misreported data under SEBI’s enhanced supervision framework and submitted incorrect cash and bank balance details in five cases, with errors ranging from Rs 1 lakh to Rs 54 crore. In risk-based supervision reports, it failed to report Rs 312 crore in funds available with clearing corporations, leading to a significant underreporting of client funds.

The inspection also found out that the broker had extended loans to related parties engaged in non-securities business for better utilisation of liquidity—a methodology that is violative of Rule 8(3)(f) of the Securities Contract (Regulations) Rules, 1957.

SEBI found that five customers were being charged incorrect initial margin charges without sufficient basis between Rs 13,932 and Rs 1.25 lakh. The charges were not refunded to the customers, which was a violation of the code of conduct by the stock broker. Apart from this, post-by-post daily margin reports with incorrect values sent to customers were found in three cases totalling Rs 1.87 crore and incorrect ledger balances were filed in one case totalling over Rs 3.11 crore.

Finally, there were negative remarks in audit reports, and there was no evidence of a prescribed mandatory cybersecurity officer. These conclusions violated the SEBI circular for cyber security and resilience released in December 2018.

Why investors should be cautious

As SEBI asserts greater control over market intermediaries, the inspection highlights investor watchfulness. Inordinate delays in the settlement of money, incorrect reporting of margins, and wrong upkeep of books impact investor interests directly. Defaults such as these risk transparency not only but also add to the monetary loss or controversy risk.

Investors are requested to verify their ledger balances periodically, settle money in time, and bring differences to the notice of the broker at the earliest. Brokers owe a duty to act in the best interest of the clients and maintain proper accounts. In case of default, investor confidence—and their money—are at risk.

This case brings to mind that compliance is not a ritual exercise—it is the very foundation of investor protection and the integrity of the markets.