SEBI suspends 3 directors of Ahmedabad Stock Exchange

The Securities & Exchange Board of India (SEBI) yesterday warned the Ahmedabad Stock Exchange to be cautious while carrying out its functions, even as it barred three of the exchange's shareholder-directors from the board.

The SEBI order came after the regulator found certain lapses and irregularities in the functioning of the exchange.

"The governing board of the Ahmedabad Stock Exchange Ltd is warned and is advised to be cautious in the discharge of all its functions and also in their financial dealings," SEBI's whole time member Prashant Saran said in a 19-page order.

The order further directed the board to ensure that the bourse "strictly and promptly" complies with regulatory requirements.

Two of the bourse's shareholder-directors barred from the board for five years are Keyur B Mehta and Kush B Shah. Another shareholder-director, Hemant Singh Jhala, has been restrained from holding any position as a director with any intermediary or entity registered with SEBI till further directions.

The bourse has also been ordered not to use money from its Investor Protection Fund and Investor Service Fund till adequate checks and balances that to the satisfaction of SEBI are in place.

The exchange has to appoint an independent auditor to assess its internal control systems and implement suggestions after discussions in the board within two months.

Observing that the allegations of financial irregularities against Jhala are "serious in nature", Saran has advised SEBI to conduct a detailed probe into the matter.

"In the meantime, Hemant Singh Jhala is being restrained from holding any position as a director with any intermediary or entity registered with Securities and Exchange Board of India till further directions," the order noted.

The order, advises SEBI to complete the probe within one year.

The order follows a SEBI inspection which revealed irregularities in the functioning of the exchange going up to the board level.

The inspection conducted for the period 5 July 2011 to 8 July 2011 and 15 May 2012 to 17 May 2012 focused on aspects such as management, compliance, administrative monitoring/control and financial management.

"I am convinced that Ahmedabad Stock Exchange was negligent in the discharge of its functions and duties. I note that suspending/interrupting the working of the stock exchanges is not an appropriate penalty as it involves negative externalities and could be considered only in extreme cases," Saran said in the order.

Considering the nature of the lapses and the efforts made, he noted that "penalty of warning to Ahmedabad Stock Exchange would be appropriate in this case".

Saran noted that a stock exchange has to function in an objective and just manner, setting an example for the intermediaries related to its business and also promote healthy development of the securities market.