sebi:WTM/KMA/ERO/IVD/166/11/2009

SEBI · SEBI · 1999-09-14 · Dr. K. M. Abraham, 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

Suspend the certificate of registration of S. Jhunjhunwala & Co. (Registration no. INB 031166110) for a period of two months

Provisions invoked

• s. 19

Regulations

• Reg. 4
• Reg. 9
• Reg. 28(2)
• Reg. 4(2)(a)
• Reg. 4(2)(o)

Parties

• S. Jhunjhunwala & Co.

Holding

The Broker violated Regulation 4(2)(a) and 4(2)(e) of the PFUTP Regulations and Clauses A(1) to A(5) of the Code of Conduct, and its certificate of registration is suspended for two months. Benefit of doubt was given on Regulation 4(2)(o) and Clause B(4)(a).

Full text

Page 2 of 10 seven months. It was revealed that certain stock brokers executed matched trades in the shares of the company among themselves. The investigation conducted by SEBI had identified four stock brokers, namely, M/s N. M. Lohia & Co., M/s S. Jhunjhunwala & Co. (hereinafter referred to as the Broker), M/s Prakash Nahata & Co. and Subh Stock Broking Private Limited based on their pattern of trading and the volumes contributed by them in the shares of the company during the investigation period. The major findings of the investigation were that most of their (above mentioned stock brokers) trades were client to client which have been executed on a single terminal of the same stock broker. These stock brokers were alleged to have allowed their clients to simultaneously place both buy and sell orders for the same quantity and price, which consequently, led to the price rise and manipulation in the shares of the company. Instances of matching trades between the said stock brokers among themselves have also been noticed. It was inter alia alleged that the Broker had executed large number of self trades in the shares of the company, apart from the synchronized trades during the investigation period. It was inter alia alleged that the trade practices of the Broker while dealing in the shares of the company were unfair and fraudulent. The Broker was therefore alleged to have contravened the provisions of Regulations 4(2)(a), 4(2)(e), 4(2)(o) and 4(2)(p) of the PFUTP Regulations

Page 3 of 10 the Designated Authority (hereinafter referred to as the Enquiry Officer) submitted the report dated August 17, 2009 under the provisions of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 recommending the suspension of the certificate of registration of the Broker for a period of three months. The Enquiry Officer observed that the Broker violated Regulation 4(2)(a), 4(2)(e) & 4(2)(o) of the PFUTP Regulations and Clauses A(1) to A(5) & B(4)(a) of the Code of Conduct specified for stock brokers, mentioned in Schedule II of the Stock Brokers Regulations. Subsequently, a notice dated August 20, 2009 was issued by SEBI to the Broker advising it to show cause as to why the penalty as recommended by the Enquiry Officer or

Page 4 of 10 3. I note that the shares of the company witnessed a sharp increase during the investigation period. The price rose from Rs.23.50/- on January 01, 2004 to Rs.322/- on August 3, 2004. This increase was not supported by any strong fundamentals of the company. It was observed that the trades of certain stock brokers, namely, M/s N. M. Lohia & Co., Ms/ S. Jhunjhunwala & Co., Subh Stock Broking Private Limited and the Broker accounted for around 92% of the total trading in the shares of the company at CSE during the period of investigation. The Broker was found to have transacted in 2,60,190 shares of the company contributing to around 28% of the total trading volume in the said shares at CSE, as given below:

Source: SecMarx — sebi:WTM/KMA/ERO/IVD/166/11/2009. 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.