sebi:MO/27/MIRSD/12/03

SEBI · SEBI · A K BATRA, 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

Certificate of registration No.INB030077614 granted to M/s. Shyam Sundar Dalmia suspended for a period of 3 months, effective 21 days from date of order.

Provisions invoked

• s. 11
• s. 19

Regulations

• Reg. 7
• Reg. 13(2)
• Reg. 3
• Reg. 17
• Reg. 17(1)(k)

Parties

• M/s. Shyam Sundar Dalmia

Holding

The broker was found to have violated Regulation 17(1)(k) of the Broker Regulations for failing to maintain a margin deposit book, SEBI's circular dated 11.2.1997 for failing to maintain order book records, the Code of Conduct (Regulation 7) for indulging in matched/synchronized transactions with Mehta & Ajmera, and directions of SEBI vide circulars dated 11.2.1997 and 11.4.1997 for improperly filled client registration forms. The certificate of registration was suspended for 3 months rather than the 1 year recommended by the enquiry officer.

Full text

book, the Enquiry Officer had rejected the same without any reason. 2. With regard to the allegation that margin register was not maintained, the said broker submitted that : The record of margin deposited has been maintained in electronic form and the download is regularly generated and kept in physical form. Regulation 17(1)(k) does not prescribe any form in which the margin deposit book has to be maintained.

The SEBI Circular dated 11.02.1997 provides that a broker member should maintain a record of time when the client places the order. However, it was submitted that Regulatory Authorities themselves have found this requirement to be redundant. An amendment to the Regulations of NSE has been made whereby maintenance of order book has been made optional at the discretion of the broker and this amendment is within the knowledge of SEBI. Therefore, this charge is not a material one that warrants any severe regulatory penalty. Further, although they are not members of NSE, NSE itself operates out of Calcutta and there can be no reason to treat a broker who is not a member of NSE differently. There is also no investor compliant on this ground and the reliance on the Code of Conduct to highlight the importance of maintaining an order book is misplaced.

Two instances of alleged matching transactions have been listed in the enquiry report. It is submitted that the inspecting team has recorded in the basic inspection report that there were no matching i.e. synchronized transactions, on our part. Even in two case dealt with in the enquiry report, the transactions cannot be said to be synchronized transaction. This is because in the case of Zee, the sale was for 80,010 shares while the purchase was for Rs.75,005 shares. For synchronised transaction to be put in place with a view to reverse the same in the next settlement, the quantity of share would have to be similar. In the case of HFCL too it will be noted that the purchase was for 50,000 shares whereas the sale was for 90,000 shares. So also while the purchase was on February 28, 2001, the sale was on March 9, 2001. All these transactions were transactions culminating from placement of orders in the ordinary course of business in the screen based online trading system where the electronic trading mechanism automatically matches with the different players in the market. Merely because a particular purchase and a particular sale in the same stock get matched with the transactions amount to a synchronized transaction. Therefore, no allegation of violating SEBI Circular on the Code of Conduct can be alleged.

Source: SecMarx — sebi:MO/27/MIRSD/12/03. 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.