Sebi imposes Rs 6 lakh penalty on MCX in data entry norms case

Capital markets regulator Sebi has imposed a penalty of Rs 6 lakh on Multi Commodity Exchange (MCX) for flouting norms in a case pertaining to data entries of Sikkim-based clients.

The matter relates to incorrect input of State code and City code as Sikkim by seven trading members of MCX in the UCC (Unique Client Code) database.

In its order, Sebi found that MCX imposed a penalty of Rs 10,000 per client on these trading members for wrong entries in June 2022.

"The instant case pertains to incorrect input of State code and City code as Sikkim which does not cover under Material Discrepancies. Hence as per the ToR Member & Core SGF Committee (MCSGFC) is the authority to formulate policies for regulatory actions," Sebi said in its 58-page order on Tuesday.

It means MCX was required to take it to the committee which is empowered to frame policy without imposing a penalty under material discrepancy.

In its order, Sebi noted that MCX has not complied with certain clauses Term of Reference of Member & Core SGF committee prescribed by the regulator.

Under the rule, monetary fines should be levied on brokers based on policy approved by MCSGF. However, in the instant case while no provision existed, in place of taking up the matter before MCSGFC for formulating policy, MCX imposed the penalty on its trading members under some other clause.

Further, Sebi noted that MCSGFC is the authority, as per the rules, for taking appropriate action against trading members, as against action approved by MD and CEO in the instant case.

It was alleged that MCX failed to verify that 50 clients were not actual residents of Sikkim State, despite KYC documents of clients reflecting the same. This resulted in alleged non-compliance with rules by the exchange.

The order came after Sebi came across various Newspaper articles regarding trading in MCX, wherein it was alleged that since Sikkim residents enjoyed exemptions, they were being used as proxies by traders from other states, unidentified people from outside are taking undue advantage given to Sikkim people and these traders were also indulging in money laundering.

It also came to the knowledge of Sebi that trades in exchange from Sikkim-based clients had seen a spurt from less than 0.01 per cent in June 2020 of the exchange's total turnover to 5.46 per cent in February 2022, which subsequently declined to 0.01 per cent in June 2022.