sebi:SD/AO/138/2011
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Facts / Headnote
Penalty of Rs. 1,00,000 imposed under Section 15HB for violation of Code of Conduct; PFUTP violation held not established
Provisions invoked
- s. 15
- s. 15H
- s. 15J
Regulations
- Reg. 7
- Reg. 4
- Reg. 3
- Reg. 4(1)
Parties
- M/s. Ruchiraj Shares and Stock Brokers Private Limited
Holding
The Noticee violated Clauses A(1), A(2) and A(5) of the Code of Conduct under Regulation 7 of the Brokers Regulations and was penalized Rs. 1,00,000 under Section 15HB of the SEBI Act, while violation of the PFUTP Regulations was held not established for lack of conclusive evidence.
Full text
Page 2 of 9 3. The investigations revealed that 42 entities were allegedly involved in manipulating the price of MCL. Out of the 42 entities, 33 entities were allegedly found to be connected to each other. They had common address and/or common contact number. Further, some of the connected entities transferred shares of MCL among themselves through off market trades and some of them shared common directorships in associate companies. These entities apparently entered into off-market/synchronized and structured deals that led to creation of misleading appearance of trading and artificial volume in the scrip. The dealings of the above nature had distorted market equilibrium leading to sudden spurt in the volume and price of the scrip of MCL. One of the brokers, M/s. Ruchiraj Shares and Stock Brokers Private Limited (hereinafter referred to as ‘the Noticee’) had contributed significant price and volume in the trading of the shares of the MCL while dealing on behalf of the interconnected clients.
Page 3 of 9 Act, the alleged violation of provisions of the PFUTP Regulations and Brokers Regulations. Show Cause Notice, Reply & Personal hearing
Page 4 of 9 August 5, 2010. The Noticee replied to the SCN vide letter dated August 2, 2010 wherein it was inter alia stated as follows: ¾ The Notice is vague as it does not specifically state the violations which are alleged to have been committed by them. ¾ The relevant material relied upon in making the Notice has not been provided to the Noticee and the same was sought. ¾ That the Noticee executed all the trades as per the instructions of the clients in the normal course and for the sole purpose of earning brokerage. ¾ That except in one instance, out of the said 1613 instances, the Noticee’s clients were present on both legs of the trade i.e., buy and sell, which was a mere coincidence and does not call for any adverse inference. Thus the allegation of structured trades does not stand. ¾ That in a transparent, computerized price and order matching mechanism of BSE, it is not possible to identify the counter parties, thus it is not possible to structure the trades. ¾ That the PFUTP Regulations may be attracted only when the transactions are made with an intention to artificially influence the price of the shares or any harm is caused to any investors and not otherwise. ¾ That the Noticee exercised due skill, care and diligence and maintained high standards of integrity in the conduct of their business. ¾ Further, the Noticee had requested for another opportunity of personal hearing.
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Source: SecMarx — sebi:SD/AO/138/2011. 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.