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Sebi refuses to renew FII registration of CSFB

BS Markets Bureau in Mumbai

The Securities & Exchange Board of India has rejected the application of Credit Suisse First Boston to renew its foreign institutional registration and also to renew and register its sub-accounts: Kallar Kahar Investments Limited, Credit Suisse First Boston (Cyprus) Ltd and Credit Suisse First Boston, Singapore.

Credit Suisse First Boston (I) Securities Pvt Limited, CSFB's broking arm in India, has been suspended for two years by Sebi for its involvement in the market irregularities of March 2001.

The registration granted to CSFB, Switzerland, to operate as a foreign institutional investor was valid till June 25, 2002. The entity sought renewal of its registration.

CSFB is a public limited company incorporated in Zurich, Switzerland, and operates as a commercial and investment bank. It is registered with Sebi as an FII.

Issuing the order, Sebi chairman G N Bajpai said the applicant, being inextricably linked to the activities of the broker (the Indian affiliate), "is not a fit and proper person as required under Regulation 6(1) (f) of the said regulations and that their track record and general reputation of fairness and integrity are not above reproach. I am also of the opinion that granting renewal of registration to the applicant will not be in the interests of the development of the securities market".

CSFB (India), a broking firm, is a subsidiary of CSFB, in which the latter holds 75 per cent of the paid-up capital.

On April 18, 2001, the broker had been prohibited from any activities, pending investigation and enquiry.

Further, on June 13, 2002, the registration of the broker was suspended for two years with effect from April 18, 2001. The restraint order and the suspension of registration were on account of the broker having violated the provisions of the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995, and the Sebi (Stock Brokers and Sub-Brokers) Regulations, 1992.

Accordng to Sebi, since the parent, the applicant, has a shareholding of 75 per cent in the broking outfit and by virtue of the shareholding, the applicant does exercise substantial control over the management and functioning of the broking entity, it cannot contend that it was unaware of the irregularities committed by the broking entity.

The submission of the applicant that none of the staff members dealing in equities of the broking firm held any positions of management or other responsibilities as regards the applicant's operations is not relevant.

This is because, being the dominant shareholder, the applicant did have control over the functioning of the broking firm but failed to ensure that it acted in accordance with the law, the and rules and regulations framed in it.

The FII applicant had submitted that there was no relevance or nexus between the suspension of CSFB (India) and the application for renewing its FII status. The issues, it said, are separate and there is no justification, as a matter of law, for concluding that the suspension of CSFB (India) is a valid reason for rejecting the applications.

"There is no justification for preventing the applicant from carrying on its business as an FII solely as a result of the suspension of CSFB India. CSFB India has already been subject to a very severe sanction by Sebi," the FII said.

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