sebi:PT/AO-06/2012

SEBI · SEBI · Praveen Trivedi, Adjudicating Officer

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Facts / Headnote

ISSL held guilty of violating PFUTP Regulations and Broker Regulations Code of Conduct; penalty of Rs. 3,50,000 imposed

Provisions invoked

• s. 15I
• s. 15
• s. 15H
• s. 15J

Regulations

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

Parties

• ISSL

Holding

ISSL was held guilty of violating regulations 4(1) and 4(2)(a),(b),(e),(g) and (n) of PFUTP Regulations and clauses A(1)-(5) of Code of Conduct read with regulation 7 of Broker Regulations. A total penalty of Rs. 3,50,000 was imposed under sections 15HA and 15HB of the SEBI Act.

Full text

Page 2 of 14 (v) Trades of ISSL accounted for 37.58% of gross traded quantity on the NSE; (vi) Trades by ISSL were executed by it on behalf of its sub-broker, Monalisha Securities Private Ltd. (hereinafter referred to as “MSPL”) for ultimate clients i.e. Shri Pankaj Gupta (hereinafter referred to as “Shri Gupta”) and M/s. Classic Investments; (vii) During the investigation period, MSFL had dealt for a total of seven days while ISSL did so for 6 days. Except for 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; (viii) On all the six 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; (ix) When the MSFL and ISSL were trading (except on 19.05.2004) volumes at NSE ranged between 8400 to 20600 while on the remaining days it was in the range of 1 shares to 2650 shares only; (x) 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%. (xi) Similar trading pattern was observed between MSFL and ISSL in the same scrip of VIL during the pe

Page 3 of 14 (iii) MSFL has purchased and sold 17,000 shares and contributed about 39.02% of the gross traded quantity at NSE; (iv) All the trades by MSFL was executed by it 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 12000 shares only during the relevant period; (vi) MSFL traded for 4 days whereas ISSL traded for 3 days. Except for 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 the 3 days, ISSL was first buyer and MSFL was the counterparty seller. Thereafter, they use 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/

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 ISSL. In the show cause notice issued to ISSL, it was called upon to explain 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 read with 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 ISSL vide aforesaid show cause notice.

Source: SecMarx — sebi:PT/AO-06/2012. 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.