sebi:Order/VV/JR/2019-20/6416

SEBI · SEBI · 2018-04-03 · Vijayant Kumar Verma, Adjudicating Officer

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Facts / Headnote

Penalty imposed on the Noticee for violation of PFUTP Regulations

Provisions invoked

• s. 15
• s. 15H
• s. 15J
• s. 28A
• s. 14
• s. 31
• s. 14(1)
• s. 31(1)
• s. 31(3)

Regulations

• Reg. 4
• Reg. 3
• Reg. 2
• Reg. 3(a)

Parties

• M/s. Universal Enterprises Ltd

Holding

The Noticee violated Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(a) of PFUTP Regulations, 2003 by executing reversal trades in illiquid stock options at BSE creating artificial volume, and a penalty of Rs. 5,00,000 was imposed under Section 15HA of the SEBI Act.

Full text

In the matter of dealings in Illiquid Stock Options at BSE Page 2 of 19 2. SEBI conducted an investigation into the trading activities of certain entities in ISO, BSE for period April 1, 2014 to September 30, 2015 (hereinafter referred to as “Investigation Period”/IP”). Pursuant to investigation, it was observed that during IP, total 2,91,643 trades comprising substantial 81.38% of all the trades executed in Stock Options of BSE were non-genuine trades. The aforesaid non- genuine trades resulted in creation of artificial volume to the tune of 826.21 crore units or 54.68% of the total market volume in Stock Options segment of BSE during the IP. It was also noted that said non-genuine trades were not restricted to any specific contract or between any specific set of entities.

In the matter of dealings in Illiquid Stock Options at BSE Page 3 of 19 reversed at `11.3 per unit on the same day between same counter parties within at 11:33:56 i.e. within 12 seconds.

In the matter of dealings in Illiquid Stock Options at BSE Page 4 of 19 8. The Noticee vide letter dated October 15, 2018 replied to the SCN denying the allegation. In order to comply with the principles of natural justice an opportunity of personal hearing was given to the Noticee on March 7, 2019 vide letter dated February 5, 2019. The Noticee did not appear on the scheduled date. The Noticee vide letter dated February 5, 2019 submitted, inter alia, the following:  “The trades entered by the assesse between the period mentioned therein the notice, i.e. 01-04-2014 to 30-09-2015, have not been reversed on the same day as is evident by the copies of contract notes enclosed, hence the reversal do not fall into the definition of the non-genuine trades, as envisaged in the point 2 of the notice issued which is enumerated below for your reference:  “Reversal trades are considered non-genuine if it involves reversing its buy or sell position in a contract with subsequent sell or buy position with the same counterparty during the same day. Whereas the artificial volume was considered as the volume (no. of units) reversed in a non-genuine trade, comprising both original volume and reversed volume while keeping out the volume which is not reversed.”  The trades have been entered into by the assesse through M/s Katyani Commodities Pvt. Ltd. and Midnight Commodities Pvt. Ltd. There have been no transactions through the CP members mentioned in the Annexure C of the notice issued.”

Source: SecMarx — sebi:Order/VV/JR/2019-20/6416. 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.