sebi:WTM/KMA/IVD/348/01/2011

SEBI · SEBI · 2005-11-25 · 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

Certificate of registration of the stock broker suspended for a period of one month, running concurrently with an earlier suspension order dated December 7, 2009.

Provisions invoked

• s. 19

Regulations

• Reg. 4(a)
• Reg. 28(2)

Parties

• Tropical Securities and Investments Private Limited

Holding

The stock broker, Tropical Securities and Investments Private Limited, was held to have contravened Regulation 4(a) and (b) of the PFUTP Regulations and Clauses A(3), (4) and (5) of the Code of Conduct for stock brokers, and its certificate of registration was suspended for one month.

Full text

Page 2 of 8 2. Thereafter, SEBI, vide notice dated November 25, 2005, enclosing therewith a copy of the Enquiry Report, directed the stock broker to show cause as to why action as recommended by the Enquiry Officer should not be taken against it. The said notice also required the stock broker to explain why consequential action under the Securities and Exchange Board of India (Criteria for Fit and Proper Person) Regulations, 2004 (since rescinded) should not be taken against it. The stock broker replied to the aforesaid notice, vide letter dated December 8, 2005. The stock broker made further submissions, vide letter dated July 14, 2006, pursuant to a hearing before my predecessor. While the instant proceeding was in progress, the stock broker filed an application dated February 21, 2009 for passing of a consent order in terms of SEBI Circular dated April 20, 2007. Therefore, the proceeding was kept in abeyance and pursuant to the rejection of the said application, the stock broker was granted another opportunity of hearing on February 3, 2010. On the said day, Mr. Bhupen Dalal, Advocate appeared on behalf of the stock broker and made

Page 3 of 8 Report had given the buy and sell quantities traded by the stock broker for its various clients for the period from January 2000 to March 2000. In terms of the table at page 11 of the Enquiry Report, the stock broker had purchased 5,77,650 shares of the Company during the investigation period. Out of which, 5,59,750 (approximately 97% to the trades of the stock broker) shares were bought by Harbinger Trading Company Private Limited. From the said table, it is noted that the stock broker had executed trades for its client, Harbinger Trading Company Private Limited, who had purchased a net of 5,59,750 shares during settlement nos. 42, 43, 44, 45, 46, 47 and 50. In terms of the Enquiry Report, the stock broker had himself admitted in his statement before the Investigating Officer that the said client is its associate company. It is also mentioned in the said Report that the stock broker had not disputed the trade details. The said Report also observed that the larger share of trading by the stock broker was on behalf of Harbinger Trading Company Private Limited, an associate entity of the stock broker, as the trades for the other clients are miniscule in comparison to the transactions done for the aforesaid client.

Page 4 of 8 The Enquiry Report had also mentioned the details of the alleged structured/matched transactions, the stock broker had with another stock broker, Lallubhai Ranchhoddas Share Brokers Private Limited. According to the said Report, the stock broker had entered into 7 matched/structured transactions amounting to 1,04,900 shares with Lallubhai Ranchhoddas Share Brokers Private Limited and the buying and selling client in the aforesaid transactions was Harbinger Trading Company Private Limited. On considering the reply/submissions of the stock broker, the Enquiry Officer had observed thus: “I, therefore, hold the broker guilty of creating artificial volumes by fictitious transactions by synchronization and of misusing the stock exchange mechanism for the said purpose. Though it was repeatedly stated by the broker that there was no intention to create artificial volumes, broker admittedly created volumes for ulterior purposes.”

Source: SecMarx — sebi:WTM/KMA/IVD/348/01/2011. 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.