sebi:WTM/VKC/ID5/30/07

SEBI · SEBI · 2006-09-29 · V. K. Chopra, 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

Minor penalty imposed: suspension of certificate of registration for one month

Provisions invoked

• s. 19

Regulations

• Reg. 7
• Reg. 13(4)
• Reg. 3
• Reg. 6
• Reg. 200

Parties

• M/s Keynote Capitals Ltd (SEBI Registration No. INB 080926534)

Holding

The Broker (Keynote Capitals Ltd) violated Regulation 7 read with the Code of Conduct in Schedule II of the SEBI Stock Brokers and Sub-Brokers Regulations, 1992, and Regulations 3 and 4(a) of the PFUTP Regulations, by assisting, aiding and abetting clients Scimitar and Rathi in cornering the low floating stock of DFTL and creating artificially high prices. A minor penalty of suspension of the certificate of registration for one month was imposed.

Full text

3.2 The Broker stated that they were not aware of any financing done by Scimitar to Rathi. They credited the cheque received from the client to his account in the normal co business and they are not required to ascertain the identity of the drawer of the cheques. 3.3 The Broker stated that they were unaware that Rathi had traded through them alone and his trades through them constituted 50.37% of gross volume and 71.09% of net volum scrip DFTL traded on BSE. 3.4 Broker while admitting the fact of substantial increase in price and the trades on behalf of the two clients, Scimitar and Rathi, submitted that merely because the said purchased substantial number of shares, cannot be the ground to infer that they have committed any violation. 3.5 With regard to the finding of the Enquiry Officer on their placing of buy orders for substantial quantities at upper circuit prices, they submitted that the client who is not purchase the number of shares that he wanted on a particular day, by placing order even up to the upper circuit of the price band, tends to continue buying on the next day to the upper price band. 3.6 The Broker also submitted that the price of the scrip of DFTL, was hovering around Rs.11/- but with very small volumes indicating thereby that at that price, there was v interest from sellers. Therefore if a buyer wanted to buy more shares he had no choice but to buy them at a higher price which would find favour with sellers. This could ha the reason for the clients plac

6.6 The Broker has not given any satisfactory reply to the aforesaid finding either in its reply dated January 18, 2006 or in the written submission dated October 12, 2006. The Bro taken the same stand of ignorance in its reply dated January 18, 2006 wherein he has stated that they were not required to enquire into the identity or bonafide of the d the cheque deposited by their clients. The said contention of the Broker is against the code of conduct as stipulated under Regulation 7 of SEBI Stock Brokers and Sub- Regulations, 1992. 6.7 The Enquiry Officer has also held that there were almost 22 trading days at BSE between November, 2000 to January, 2001, when the prices of the scrip closed at more than 7 the previous day’s close. The Broker has put buy orders on behalf of clients Scimitar and Rathi for substantial quantities at these upper circuit prices. The day to day ana the price volume statement showing the days when the price of the scrip closed 7% above the previous day’s close had been furnished in the Show Cause Notice and the also reproduced hereunder

Broker that there was significant buying interest in the scrip at the circuit price. There were buy orders for 1,09,750 shares and sell orders for 51,650 shares at the circuit p the Broker had a major concentration with buy orders for 1,00,000 shares at the circuit price. The Broker has not furnished any reply to the above finding. 6.11 I observe from the subsequent Settlement no. 044/2000-01 to 152/2001-02 that the scrip opened at Rs 46.25 on January 22, 2001 and was traded in the range of Rs 36 to R May 08, 2001. Ultimately, it closed at Rs. 11.25 on October 31, 2001 with a corresponding trading volume of only 25 shares. In this period the market gross and ne volumes were of 6,52,639 shares and 2,35,842 shares, respectively and broker had the highest concentration at the trading member level and had gross purchased 391,680 accounting for 60.01% of market gross purchase and net purchased 221,681 shares accounting for 94% of market net purchase. I find that Rathi alone had gross pu 328726 shares through the Broker which was around 50.37% of the gross market volume. This clearly shows that, Rathi has once again done substantial trading in th Further, his net purchase of 1,67,674 shares constituted 71.09% of the net traded volume at BSE. I don’t find any reply or submission from the Broker to explain and def above findings with any rationale. 6.12 I also observe that the Broker during January 22 to July 24, 2001 had executed a large number of incremental/ decremental trades on

Source: SecMarx — sebi:WTM/VKC/ID5/30/07. 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.