Regulator Sebi on Thursday said 63 Moons Technologies has been offering STP services without its approval and allowed the company to provide such services for three more months to clients in order to avoid any possible disruptions for securities market participants.
The watchdog’s directions were part of order wherein it rejected 63 Moons’ application seeking renewal of approval to provide Straight Through Processing (STP) services on the basis of ‘fit and proper’ criteria.
Generally, financial firms use STP to pass information electronically in order to optimise the speed at which they process transactions. This eliminates the need for a hands-on re-entry of data that has already been completed at the source.
63 Moons, formerly Financial Technologies (India) Ltd (FTIL), on April 25, 2016 sought approval to act as an STP service provider for the period from June 30, 2016 to June 29, 2019.
In the 23-page order, Sebi Executive Director Anand R Baiwar rejected the application for renewal of approval relating to the period from April 17, 2018 to June 29, 2019. The rejection is on the basis of ‘fit and proper’ criteria.
The criteria of ‘fit and proper’ was made part of STP Guidelines from April 17, 2018. Sebi had issued a show cause notice to the company regarding the application on June 12, 2018.
It was alleged in the show cause notice (SCN) that 63 Moons and Jignesh Shah do not satisfy the criteria of being ‘fit and proper person’ as laid down in the eligibility criteria under the STP Guidelines.
Shah is founder and chairman emeritus of 63 Moons, as per the company’s website.
Rejecting the application, Sebi said STP Guidelines stipulate that no person shall act as an STP service provider unless it obtains approval from the regulator.
63 Moons have claimed that it is giving STP services to 300 brokers, 15 custodians and 170 fund houses, Sebi said in the order citing submissions made by the company.
“These services are being provided without approval of Sebi. The activities of these market participants may get disrupted in case of sudden stoppage of such services which will not be in the interest of securities markets and investors in securities market,” the watchdog said.
Without prejudice to action that may be taken for acting as STP service provider without approval, and to protect the interests of investors, Sebi said the company “may provide necessary services for a period not exceeding three months”.
The three-month period would be from the date of receipt of this order.
According to Sebi, the three-month period is being given to avoid “any disruption and enabling the users of such services to make alternative arrangements”.
“The allegation levelled against the noticee (63 Moons) in the SCN dated June 12, 2018 that the noticee does not satisfy the criteria of ‘Integrity, reputation and character’ for being fit and proper person as per provisions of Intermediaries Regulations read with… STP Guidelines, is established for the period from April 17, 2018 to June 29, 2019,” Sebi said in its order.
“Accordingly, the application for renewal of approval is rejected to the extent it relates to period from April 17, 2018 to June 29, 2019,” it added.
Under the guidelines, no person will act as an STP service provider unless it obtains approval from Sebi to provide such services.
While processing the application of 63 Moons for renewal of approval to act as STP service provider, Sebi found that the applicant and its promoter do not carry good reputation, integrity and character in terms of Intermediaries Regulations.
The company contended that its board has been reconstituted and Shah is not associated with it in any executive capacity, as per the order.
However, the regulator noted that Shah continues to be promoter and chairman emeritus of the company. Even now, he is described as such and as founder and driving force of the applicant company on its website, Sebi said.
“The reconstitution of the board does not change the effect on the reputation, integrity and character of the applicant (63 Moons) judged on the basis of the facts and conduct/ role of the applicant and its promoter in the crisis at NSEL described in the FMC order,” it added.
At the time of a Rs 5,600 crore default at the National Spot Exchange Ltd (NSEL) — which was part of FTIL — Shah was chairman and managing director of FTIL as well as vice chairman of the NSEL board.