IIFL Securities' shares experienced a sharp decline of over 19% in morning trade on Tuesday. The drop came after the Securities and Exchange Board of India (Sebi) issued a ban of 2 years on the brokerage firm. The ban was imposed due to the firm's misuse of clients' funds. Formerly known as India Infoline Ltd, IIFL Securities has been barred from onboarding new clients due to the misutilization of funds. The stock faced a weak start and experienced a decline of 18.48% to reach Rs 58 on the BSE.
The NSE also witnessed a sharp decline of 19.24%, with the stock trading at Rs 57.50. Sebi's decision came after conducting several inspections of IIFL's account books from April 2011 to January 2017. The investigation revealed that IIFL had misused funds belonging to its credit balance clients to settle proprietary trades and trades of its debit balance clients during the period from April 2011 to June 2014. These violations were again identified during the inspection conducted in March 2017 for the FY16 and FY17 period.
Sebi's findings indicated that IIFL funded trades of clients with debit balances using funds from clients with credit balances on 795 out of 809 trading days between April 2011 and June 2014. Additionally, IIFL also utilized funds from clients with credit balances to support its proprietary transactions on 42 trading days during the same inspection period.
Sebi member S K Mohanty, in the final order comprising 64 pages, stated that the evidence clearly demonstrates that IIFL violated Sebi's 1993 circular by misusing funds of credit clients for trades of clients with debit balances and for its own proprietary trades. Consequently, Sebi has imposed a two-year ban on IIFL Securities, prohibiting the company from onboarding any new clients in its capacity as a stockbroker.
The market reacted swiftly to Sebi's decision, resulting in a significant decline in IIFL Securities' shares. Investors & industry observers will closely monitor developments in this case and its impact on the brokerage firm's future operations.