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2015 (7) TMI 664 - AT - Companies LawDefault in collection of margin from Trading members (TMs) - Prohibition on taking new assignment or contract or launch a new scheme for a period of 3 months - Section 19 of the SEBI Act, 1992, read with Regulations 28 (2) of the SEBI (Intermediaries) Regulations, 2008 - Professional responsibilities of stock brokers - Significance of margin money - Held that:- SEBI would always have the authority to inquire and impose punishment in those matters which, in its expert opinion, have not been dealt appropriately by the stock exchange concerned. It is not a question of the punishment being mild or severe, but that of regulating the market at a level far beyond the scope and reach of an individual stock exchange which is concerned primarily with its own members and their respective clients. Clause 8 of the circular dated August 10,2011 particularly states that “SEBI shall examine the implementation of this circular during inspection of the stock exchange”. The insertion of this particular clause removes any doubt which may have crept into our minds in light of the relentless argumentation on part of the appellant's learned lawyers. While issuing this circular, SEBI did not intend to abdicate its responsibility with respect to such a vital capital regulatory measure as the collection of margin money. We would hasten to add that stock exchanges have also been conferred with regulatory powers under the SCRA, 1956 and the rules framed thereunder. However, this per se can never be construed as precluding SEBI from acting in a particular matter which calls for intervention in the facts of a given case. SEBI, in the circular itself, has retained the right to supervise the margining system in the market. It is a stock-broker’s professional responsibility, rather it is his duty, to investigate the financial capability of an investor entering a margin transaction and to inform that investor of the implication of a margin transaction. The form of collection of margin money, its adequacy and deposit, including limit on exposure, are extremely important ingredients of a purposeful and effective margining system in the present day capital market culture. Expeditious and correct reporting of margin also acquires great significance towards this end. Additionally, SEBI has prescribed a model Clearing Member-Trading Member Agreement vide circular dated December 3, 1998. According to clause 5 of this agreement, the CM shall collect margins from the TM as prescribed by the relevant authority from time to time. Not having done the same, the appellant is also in contravention of these provisions. Clauses A(1) (2) and (5) of the Code of Conduct for stock brokers provide that stock brokers shall maintain high standards of integrity, promptitude and fairness in the conduct of all business while acting with due skill, care and diligence; and abiding by all the provisions of the law applicable to stock brokers. Margin money has always played an important role in containing risks which are inherent in the functioning of any capital market. Owing to its non-adherence huge market crashes have been witnessed all over the glove in the recent past. The vital position that the margining system holds as a crucial instrument to maintain market equilibrium can never be undermined. It is, therefore, pertinent for all market players to maintain the sanctity of margining as a risk management tool while dealing in securities, be it in the cash or in the F&O segment. - Decided against the appellant.
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