SEBI Takes Action Against Stock Broking Firm Over Axis MF Case Lapses

The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs 4 lakh on Pace Stock Broking Services Pvt. Ltd. for record-keeping and compliance failures during an investigation into the alleged front-running of Axis Mutual Fund trades. The regulator clarified that the order does not establish that Pace was involved in front-running activities but focuses on lapses that affected the investigation process.

SEBI found that Pace failed to maintain and provide certain mandatory audit-trail records required under stock broker regulations. According to the order, the brokerage was unable to provide trader-specific IP address details for 93 trading instances, despite being required to preserve records that link orders with individual dealers and trading terminals. The regulator said the missing information created difficulties in examining the trading activities under review.

The brokerage had argued that technical limitations and challenges during the COVID-19 pandemic period prevented it from identifying the exact IP addresses used by specific traders. However, SEBI rejected the explanation, stating that Pace did not provide sufficient evidence to support its claims. The regulator noted that the firm had acknowledged its inability to map specific MAC IDs and IP addresses to individual traders.

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The order also highlighted concerns regarding trading terminal registrations maintained by Pace. SEBI found that credentials associated with Kaleeswaran Pandian, who was not serving as a dealer for the brokerage during the relevant period, were used for obtaining and maintaining terminal IDs and user IDs allegedly operated by another person.

Pace described the mismatch in credentials as a clerical error, but SEBI disagreed, observing that the registrations were renewed and updated over several years. The regulator said the repeated maintenance of such records was inconsistent with the claim that the issue was a one-time mistake and reflected weaknesses in the firm’s compliance procedures.

SEBI further stated that Pace provided incorrect information about the identity of a dealer connected with a user ID examined during the investigation. The regulator concluded that the brokerage’s failure to maintain accurate records and provide correct details affected the probe and breached the standards of diligence expected from a registered stock broker. The Rs 4 lakh penalty was imposed for these compliance violations.

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