sebi:CO/202/MRD/02/2004

SEBI · SEBI · 2002-11-18 · G.N. Bajpai, Chairman

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

Facts / Headnote

Certificate of registration of stock broker N Khemani & Co. suspended for 14 months (instead of 2 years recommended by Enquiry Officer), effective up to 20.03.2004 taking into account the interim order period.

Provisions invoked

• s. 4(3)
• s. 19
• s. 19(1)

Regulations

• Reg. 7
• Reg. 4(b)
• Reg. 4
• Reg. 13
• Reg. 17(1)(k)
• Reg. 16(5)

Parties

• N Khemani & Co. (Stock Broker)

Holding

SEBI held that the broker N Khemani & Co. violated SEBI Circular No. SMDRP/POLICY/CIR-32/99 by conducting off-the-floor transactions to the tune of Rs. 93,00,000/- and concealed the existence of clients including Ketan Parekh entities by declaring trades as self/proprietary trades, and suspended its certificate of registration for 14 months instead of the 2 years recommended by the Enquiry Officer.

Full text

2 these off the floor transactions, appears to have acted in violation of Section 19(1) of the Securities Contract Regulations Act, 1956. (2) That by concealing the dealings of the clients including the KP Group and by giving wrong declarations to CSE, the broker avoided compliance with the prudential exposure limits and margin requirements of CSE prevailing during the relevant period and thereby, interfered with the fair and smooth functioning of the market in violation of Regulation 4(b) of SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Regulations, 1995. (3) Violation of Regulation 7 of SEBI (Stock Brokers & Sub Brokers) Regulations, 1992 read with Clause A (1, 4 &5) of Code of Conduct stipulated in Schedule II of the said Regulations.

3 clauses A(1), (4) & (5) of the Code of Conduct stipulated in Schedule II of the Regulations; (iii) Section 19 (1) of the Securities Contracts (Regulation) Act, 1956; (iv) CSE’s Notice dated 16th September, 1999 and CSE’s bye-laws 332 and 334 (iii); (v) Violation of SEBI Circular:- (a) SMDRP/Policy/Cir-32/99 dated September 14th, 1999 on negotiated deals, off-the-floor transactions, synchronized deals, cross deals etc,

4 out by comparing the data furnished by it and the figures obtained or supplied by CSE. Hence, the broker stated that, it is absolutely necessary to know the data obtained from CSE in this regard to ascertain the anomaly / discrepancy, if any. 7.2 The broker submitted that though the Enquiry Report contains a mechanical reproduction of its contentions, it does not deal with the contentions to conclusively prove the alleged violation. The Enquiry Report also does not state or mention the documents relied by the Enquiry Officer to hold that the broker is in violation of the Act, Regulation or the Circulars mentioned therein. The broker further submitted that neither the show cause notice nor the enquiry report shows how this figure is arrived at. It is also silent as to the documents relied upon to arrive at this figure. Even the Tables provided in the show cause notice and the Enquiry Report do not reveal how these figures are arrived at. 7.3 The broker stated that the data furnished by it contained interalia, the client ledger account reflecting the transactions of debit and credit. It appears that the debit and credit are interpreted as buying and selling or vice versa. With regard to the alleged off floor transaction, the broker submitted that the same amounts to the compulsory carry forward on account of book closure and market Badla done in the CSE, which are not accountable to off floor deals as elaborated by the following chart.: Settl No. Qty., Share & Rate Sale Value

Source: SecMarx — sebi:CO/202/MRD/02/2004. 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.