sebi:15312

SEBI · SEBI · 2004-03-12 · Madhukar, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Minor penalty of warning imposed against the broker

Provisions invoked

• s. 19

Regulations

• Reg. 7
• Reg. 13(4)
• Reg. 5
• Reg. 13(2)

Parties

• Parklight Investments Pvt. Ltd.

Holding

Parklight Investments Pvt. Ltd. was held guilty of violating Clause A(2) of the Code of Conduct for stock brokers for failure to exercise due care and diligence in executing circular trades for its client. A minor penalty of warning was imposed against the broker.

Full text

1.1 Parklight Investments Pvt. Ltd. ( hereinafter referred to as “the broker” ) is a member of the Stock Exchange, Mumbai (hereinafter referred to as “BSE”) and is registered with Securities and Exchange Board of India (hereinafter referred to as “SEBI”) vide registration No. INB 011037836. 1.2 SEBI conducted an investigation into the affairs relating to buying, selling and dealing in the shares of Mangalya Exports Ltd. (hereinafter referred to as “MEL”) for the period 17.05.2000 to 21.07.2000. Investigation revealed that MEL had been a continuously loss incurring company with a very small volume of turnover. The price of the scrip went up from Rs.96/- to Rs.194/- in a month’s time in May- June 2000 and then declined to the same level of Rs.96/- in June-July 2000. 1.3 Investigation revealed that the broker traded for their client Rushil Enterprise, proprietor Shri Ashish Suresh Shah. The broker purchased 3,900 shares and sold 3,900 shares of the said scrip for him. Investigation revealed that Shri. Ashish Suresh Shah through his firm viz., M/s. Rushil Enterprise had placed a number of buy and sell orders, through the broker, for same total quantity and same rates with minimum time difference ranging from 30 seconds to 4 minutes in most of the trades and thus he tried to create a market by doing fictitious trades and circular trading and also inflated the price of a illiquid scrip of a loss incurring company from Rs.128 to Rs.194 within a very short period of time. Thus client

Regulations”) to enquire into the alleged violation committed by the broker of the provisions of Regulation 7 read with clause A(2) of the SEBI (Stock Brokers & Sub - Brokers) Regulations, 1992 (hereinafter referred to as “Stock Broker Regulations”) while trading in the scrip of MEL. 2.2 The Enquiry Officer, after conducting the enquiry as per the procedure laid down in the said Regulations, submitted a report dated 22.11.2004 and found that the broker was guilty of not exercising due care and diligence as required under the code of conduct prescribed for stock brokers and recommended that warning be issued to the broker to be careful in future. 3.0 SHOW CAUSE NOTICE AND REPLY 3.1 A Show Cause Notice dated 22.12. 2004 was issued to the broker along with a copy of the Enquiry Report, calling upon to show cause, in terms of Regulation 13(2) of the Regulations, as to why action as recommended by the Enquiry Officer should not be taken against it. 3.2 The Broker replied to the said show cause notice vide letter dated 10.02.2005 and submitted, inter alia , that a) the volume of trades done by the client viz. Ashish Suresh Shah was so small as to arouse suspicion that something amiss in the trading of the client. b) they had exercised adequate due diligence as reasonably expected from a prudent broker when they transacted business for the said clients and they had not violated provisions of Clause A (2) of Schedule II under Regulation 7 of Stock Broker Regulations. c) since BSE had

4.1 I have considered the facts of the case, the findings of the Enquiry Officer and the reply of the broker to the show cause notice. I note that the broker has filed written submissions vide its letter dated 10.02.2005 which has been taken on record. I am, convinced that there is no need to grant an opportunity of personal hearing inasmuch as I have taken into consideration the submissions made by the broker vide the said letter, therefore, the principles of natural justice have been complied with in the matter. 4.2 I observe that the broker had executed orders in the scrip of MEL on behalf of its client M/s Rushil Enterprises whose proprietor is Ashish Suresh Shah. The total shares purchased were 3900 and the quantity sold was also 3900 shares. The details of buy and sell position of the broker is as under: SN Date Buy Client Sub Broker Broker Qty Price Sell Client Sub broker Broker Qty Price 11 6.6.00 Rushil Enterprise Park Light Inv 1

Source: SecMarx — sebi:15312. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.