Brokerages trade weaker post SEBI action

After last week’s action by the Securities and Exchange Board of India (SEBI) against two commodity brokerages, concerns over possibility of similar action on the much larger equity business of the brokerages hit their valuations in Monday’s trade.

On Friday, SEBI rejected the applications for registration of the commodity arms of Motilal Oswal Financial Services and IIFL Holdings.

The regulator further directed that all their existing commodity broking clients be allowed to move to other brokerages within 45 days.

Additional rules

There was speculation as to whether the equity business would be subjected to additional regulatory compliance or proceedings since the commodity arms had been found unfit to function due to their alleged role in the Rs. 5,600-crore settlement scam at the National Spot Exchange Ltd. (NSEL).

Shares of Motilal Oswal Financial Services fell more than 2%, or Rs. 12.60, to Rs. 599.70. That the stock was in focus was further corroborated by the fact that the volume saw an eightfold rise on the BSE with 32,000 shares changing hands versus the two-week average of less than 4,000 shares.

IIFL Holdings too lost a little over 1%, or Rs. 3.85, to close at Rs. 361.50. During intra-day trades, however, the stock was down almost 9%, or Rs. 33, to touch a low of Rs. 332.50.

“Both the broking outfits feature among the largest equity brokerages and the regulator would take that into consideration even if it plans any further action,” said a fund manager who did not wish to be quoted.

“The concerns stem from the fact that the regulator in the past had expanded the scope of ‘fit and proper’ definition to the entire conglomerate,” he added.

The NSEL matter saw SEBI acting against 63 Moons Technologies, formerly Financial Technologies, after the erstwhile Forward Markets Commission found it unfit to function in the commodity market. Both broking houses said while they were evaluating legal options, they believed that SEBI’s orders would not impact their other businesses.

Shares of JM Financial and Geojit Financial Services also lost ground before closing the day with gains.

The commodity arms were found unfit to function due to their role in the NSEL scam