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Kolkata, Sept. 22

THE errant member of Magadh Stock Exchange, whose actions with respect to the Bhoruka Financial Services Ltd stock led SEBI to pass an order against the exchange, did not conform to the Know Your Client (KYC) norm set by the regulator, it is learnt.

Rajat Share & Stock Broker, the MgSE broker which is said to have illegally dealt in the scrip, has since been directed not to transact in securities as an intermediary registered with SEBI.

The exchange, it may be recalled, was censured last month by SEBI for unlawfully commencing trading, without establishing a settlement guarantee fund as warranted by regulations. The securities regulator, which stated in an order that MgSE was used illegally to deal in the BFSL stock, directed it not to deal in securities in any manner till further directions or pending completion of final proceedings.

An examination of the trading details of the broker has pointed to three important issues, said those familiar with the order:

Since the commencement of trading (August 1), out of the total volume of about Rs 110 crore, nearly 99 per cent was in BFSL stock. The latter, however, is listed only on Bangalore SE and was last traded way back in 1988 at only Rs 5.

This counter was traded on Magadh SE under the permitted category at the request of Rajat Share & Stock Broker. These trades accounted for 98 per cent of BFSL's paid-up capital. Execution occurred at an exceptionally high price of Rs 4,490 per share.

The broker was common to the buyer and sellers DLF Commercial Developers Ltd in Delhi and the promoter group in Bangalore.

KYC, it may be mentioned, is lately in the news in the light of SAT's (Securities Appellate Tribunal) recent decision to set aside SEBI's order on UBS Securities. The Tribunal maintained that SEBI's KYC requirements are inadequate and there is a case for greater clarity.

(This article was published in the Business Line print edition dated September 23, 2005)
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