sebi:WTM/GA/30/ISD/10/07

SEBI · SEBI · 2006-11-01 · G Anantharaman, 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

Shri Raajeev Kasat and Shri Rajeev Shroff restrained from dealing in securities till further directions; identified clients directed to cease and desist and to deposit profits as per Table 3 with NSE within 15 days; UTI Securities Ltd and Emkay Shares and Stock Brokers Pvt. Ltd. directed to conduct internal enquiry and submit action taken report within 30 days.

Provisions invoked

• s. 11B
• s. 19
• s. 12A

Regulations

• Reg. 3
• Reg. 4
• Reg. 4(q)

Holding

Prima facie customized front-running in Ballarpur Industries Ltd shares around FII sales by Netherlandse FMO NV was found, and by way of ad interim ex-parte relief dealing restraints, cease-and-desist and deposit of prima facie profits, and broker internal enquiries were ordered pending detailed investigation.

Full text

Page 2 of 23 information in the hands of a responsible market intermediary has been shared with other intermediaries and their chosen clients in what appears to be a ‘customized front running’. As a matter of fact there is a lurking suspicion whether the identified clients are genuine or whether they represent the odd people in an odd ensemble in an odd place coming together at the behest of market intermediaries. Definitely there is nothing prima facie to indicate that such identified clients have cut their teeth on the nuances of the market. In such a scenario the present ad interim order seeks to prima facie appreciate the materials available on record, to unravel the quintessence of what happened behind the façade of a routine buy and sell transaction in the market. 1.3 While analyzing the abnormal trading pattern in the shares of Ballarpur Industries Ltd (BILT) during the period November 01, 2006 to June 13, 2007, it was noticed that a set of clients, all of whom are registered with the broker M/s Emkay Shares and Stock Brokers Pvt. Ltd., as also a director of another broking firm, M/s Prayas Securities Pvt. Ltd. were found to be dealing in the shares of BILT around the time of large sell orders by a foreign institutional investor (FII) viz. Netherlandse FMO NV. The FII was observed to be selling its holdings in BILT, through M/s UTI Securities Ltd. on different dates within this period. On each of these dates a few from amongst these identified clients sold prior to the

Page 3 of 23 to them and nexus, if any, in execution of their orders required to be examined. The preliminary prima facie findings are set out in the following paragraphs. 2 Dealing in shares of BILT by Netherlandse FMO 2.1 Netherlandse FMO NV, (FMO for short) an FII registered with SEBI held 35,44,141 shares of BILTas on October 20, 2006. These shares were allotted on part conversion of FCCBs of value USD 6750000, which had been issued by Ballarpur Industries Ltd. in November 2003. It was observed that the Committee of Directors of BILT had, at its meeting held on February 01, 2007, further allotted 34,77,581 shares to FMO. FMO executed its trades through UTI Securities Limited and sold a total of 60,04,100 shares during November 01, 2006 to June 13, 2007. 2.2 It was observed from the details submitted by M/s UTI Securities Ltd. that their dealer, Shri. Raajeev Kasat, was the point of contact between the trading member and FMO, which used to convey its orders by emails that specified a limit price and quantity for the sales to be carried out. Whenever the price moved above the specified threshold price, UTI Securities would sell the shares and send a confirmation by email. FMO did not specify a particular period during which the shares were to be sold. The mails sent by FMO and the corresponding sales made by UTI Securities Ltd. on behalf of its client are presented below in a tabular format: Table 1: Dealing in shares of BILT by Netherlandse FMO N.V.-FCCB Trades Executed by

Page 4 of 23 Trades Executed by UTI on behalf of Netherlandse FMO Date of email from FMO to UTI Date Sell Qty Value ( Rs. Lacs)

Source: SecMarx — sebi:WTM/GA/30/ISD/10/07. 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.