sebi:PT/AO-05/2012

SEBI · SEBI · Praveen Trivedi, Adjudicating Officer

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Facts / Headnote

Penalty imposed

Provisions invoked

• s. 15
• s. 15H
• s. 15J

Regulations

• Reg. 7
• Reg. 11
• Reg. 3
• Reg. 4(1)
• Reg. 4(2)(c)

Parties

• MSFL

Holding

MSFL was held guilty of violating regulations 4(1) and 4(2)(a),(b),(e),(g) and (n) of PFUTP Regulations and clauses A(1),(2),(3),(4) and (5) of Code of Conduct read with regulation 7 of Broker Regulations, and a total penalty of Rs. 3,50,000 was imposed.

Full text

Page 2 of 14 (v) Trades by ISSL were executed on behalf of its sub-broker, Monalisha Securities Private Ltd. (hereinafter referred to as “MSPL”) for its ultimate clients Shri Pankaj Gupta (hereinafter referred to as “Shri Gupta”) and M/s. Classic Investments; (vi) During the investigation period, MSFL had dealt for a total of 07 days while ISSL traded for 06 days. Except on 19.05.2004 when MFSL had purchased and sold three shares, on all other days, ISSL and MSFL purchased and sold same number of shares; (vii) On all the 06 days, ISSL had first put the buy order which had matched with a corresponding sell order by MSFL. Likewise, while squaring off/reversing its position ISSL had put the sell order first followed by a matching buy order from MSFL. The time difference in matching order on each day ranged between 2 to 20 seconds. The time difference in reversal of trades also varied from 2 to 22 seconds; (viii) When the MSFL and ISSL were trading (except on 19.05.2004) volumes in the scrip of VIL at NSE ranged between 8400 to 20600 while on the remaining days it was in the range of 1 shares to 2650 shares only; (ix) MSFL and ISSL were involved in 16 structured deals across 6 settlements during the period. The difference in the price of the first trade and that of the reversed trades ranged from 3.64% to 8.85%; (x) Similar trading pattern was observed between MSFL and ISSL in the same scrip of VIL during the period from 14.01.2004 to 26.02.2004 and in another scrip i.e. NBL duri

Page 3 of 14 (iv) All the trades by MSFL was executed in its proprietary account whereas the trades by ISSL were executed by it mainly for its client M/s. Classic Investments. M/s. Classic Investment traded through MSPL, a sub-broker of ISSL; (v) Out of the 17000 shares purchased and sold by MSFL, for 12000 shares ISSL was the counter party broker. ISSL had purchased and sold all 12000 shares only during the relevant period; (vi) MSFL traded for 4 days whereas ISSL traded for 03 days. Except on 04.06.04 when MSFL purchased and sold 5000 shares; on all other days, both MSFL and ISSL purchased and sold the same number of shares; (vii) On all these 03 days, ISSL was first buyer and MSFL was the counterparty seller. Thereafter, they used to reverse the position. The time difference in matching order on each day ranged between 4 to 12 seconds. The time difference in reversal of trades also varied from 4 to 16 seconds; (viii) MSFL and ISSL were involved in 13 structured deals across three settlements during the investigation period; (ix) The difference in the price of the first trade and the reversed trade ranged from 1.36% to 8.03%; (x) MSFL incurred a loss of about Rs. 1,34,000/- for its dealing in the scrip; (xi) 12000 shares dealt by ISSL accounted for 27.54% of the gross traded quantity of the market; (xii)M/s. Classic Investments earned the profit of about Rs.82540/- by trading in the scrip of NBL; (xiii) MSFL and ISSL, in tactic understanding with the sub-broker MSPL and its

Page 4 of 14 4. In view of the above observations, SEBI initiated adjudication proceedings against MSFL, ISSL, MSPL, M/s. Classic Investments and Shri Gupta. For this purpose, Shri Amit Pradhan, the then Deputy Legal Adviser was appointed as adjudicating officer vide competent authority’s order dated 02.06.2006. The adjudicating officer issued a show cause notice dated 16.10.2006 to aforesaid persons including MSFL for its trades in the scrips of VIL and NBL. In the show cause notice issued to MFSL, it was called upon to explain as to why an inquiry should not be held against it, in terms of rule 4(3) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as “the Rules”) for the alleged violations of the regulations 4(1) and 4(2)(a),(b),(c),(e),(g) and (n) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) and clauses A(1),(2),(3),(4) and (5) of Code of Conduct as specified in schedule II readwith regulation 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as “Broker Regulations”). The present order deals with adjudication proceedings initiated against MSFL vide aforesaid show cause notice.

Source: SecMarx — sebi:PT/AO-05/2012. 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.