sebi:15341

SEBI · SEBI · 2004-07-31 · 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

Further proceedings against Bonanza Securities Limited dropped; no penalty imposed

Provisions invoked

• s. 19

Regulations

• Reg. 13(4)
• Reg. 5

Parties

• Bonanza Stock Brokers Ltd.

Holding

Proceedings against Bonanza Stock Brokers Ltd. for alleged circular trading/synchronized trades in the scrip of Kwality Dairy (India) Limited were dropped, with no penalty imposed. The WTM declined to differ from the Enquiry Officer's findings that the charges of circular trading and breach of FUTP Regulations were not established.

Full text

1.1 Bonanza Stock Brokers 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 011110237. 1.2 SEBI conducted an investigation into the buying, selling or dealing in the shares of Kwality Dairy (India) Limited (hereinafter referred to as ‘KDIL’) to ascertain whether there was any violation of the provisions of SEBI Act, 1992 and Regulations made thereunder including the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. 1.3 Investigation revealed that 3288016 shares of KDIL were traded during the period April 23 to June 6, 2004 and the broker allegedly indulged in circular trading/ reversal of trades. 2.0 APPOINTMENT OF ENQUIRY OFFICER AND ENQUIRY REPORT: 2.1 SEBI vide order dated 31.07.2004 appointed an Enquiry Officer under the provisions of Regulation 5 of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as “said Regulations”) to inquire into the alleged irregular transactions done by the broker in the scrip of KDIL and also for the alleged violation of Code of Conduct as provided in SEBI (Stock Brokers & Sub Brokers) Regulations,1992 (hereinafter referred to as “Stock Broker Regulations”), SEBI (Prohibition of Fraudulent and Unfair Trade Pra

2.2 The Enquiry Officer, after conducting the enquiry as per the procedure laid down in the said Regulations, submitted a report dated 24.1.2005. The Enquiry Officer, after taking into account the gravity of the charges established and the facts and circumstances of the case, had observed that it was not a fit case for recommending any penalty against the broker. 4.0 ISSUES FOR CONSIDERATION AND MY OBSERVATIONS: 4.1 I have considered the show cause notice, reply of the broker vide letter dated 20.09.2004 and findings of the Enquiry Officer. The issues which arose for consideration and my observations are as follows: 4.2 One issue which arises for consideration is whether the trades were synchronized and circular. It was alleged that during the period under investigation, approximately 25% of the day volume in the scrip of KDIL was due to circular trades among different groups of clients and brokers. It was alleged that each of the said brokers bought and sold the scrip amongst themselves by squaring off the deals often on the same day through the same brokers in a circular manner. I note that the Enquiry Officer observed that “since there is no mention of the other trades in the scrip during the period under investigation, it is difficult to ascertain whether the matching of the said trades was a deliberate attempt to manipulate the market or was it that these were the only trades during the said period which made the matching inevitable”. I do not find any valid reason to di

It was alleged that the broker was involved in 1371 transactions. However, it is pertinent to note that each order placed by the broker has been split and executed in a number of transactions and hence the broker cannot be held responsible for voluminous transactions. The broker in its reply has stated that Chirag Pujara was their client and transacted from their branch office at Vashi. The broker has further stated that all the transactions in the above scrip were done by their client and they were not aware of any manipulation or circular trading done by their clients. I observe that the broker had not done any proprietary trading in the scrip and hence it cannot be presumed that the broker would have had any pecuniary gain in indulging in the alleged circular trading. Moreover, there is no evidence to prove that the broker had any connections with the counterparty brokers by which it can be established that the broker acted hand in glove with the client or for that matter other brokers for creating misleading appearance of trading. Further, there is no material evidence in the investigation report to prove that the broker had any nexus with the promoters/ directors of the company. In view of this, it cannot be said that the broker had violated the FUTP Regulations as alleged in the show cause notice. 4.7 In view of the above, I do not see, in the facts and circumstances of the case, any

Source: SecMarx — sebi:15341. 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.