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TMI Blog2015 (4) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... ions for short), Rs. 10 lac on ABPL under Section 15HB of SEBI Act for violation of Regulation 7 read with Clause A(1), A(3), A(4) and A(5) of Code of Conduct for Stock Brokers under Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992 (Stock-Brokers Regulations for short) and imposition of penalty of Rs. 10 lac on AIPL under Section 15HA of SEBI Act for violation of Regulation 3(a), 4(1) and 4(2)(a), (b), (e) and (g) of PFUTP Regulations. 2. SEBI investigated trading in scrip of Sterling Green Wood Limited (SGWL or company, for short) from November 6, 2009 to December 2, 2009 (IP for short), during which price of scrip of SGWL increased from Rs. 19.80 as on November 6, 2009 to Rs. 42.50 as on December 31, 2009, with average daily volume of 69,776 shares. 3. From shareholding pattern of SGWL, it is seen that ABPL was holding more than 1% shares of SGWL as on September 30, 2009. AIPL was the holding company of ABPL; although AIPL was also acting as broker for proprietary trading account of Angel Group,-which comprised ABPL, AIPL, Angel Capital and Debt Market Limited and Angel Commodities Broking Private Limited. AIPL - a client of ABPL - was fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got executed. 323 shares from previous pending buy order got matched with 323 (out of 1000) sell order, resulting in self trade, which was not fraudulent or malafide. * In respect of balance two trades of December 1, 2009 - in which 9350 shares matched - these two trades need to be seen jointly - not separately - since three dealers using three terminals placed order for 5000 shares sale from terminal 546 at 15:06:53, order for 5000 shares from terminal no. 377 at 15:12:15; while buy order for 45,000 was placed from terminal 551 at 15:19:59, respectively. Out of buy order for 45,000 shares, 9350 got executed internally and rest got executed from market. Large time gap in three order placement may be noted. * Fact of ABPL holding more than 1% shareholding in SGWL as on September 30, 2009, may not be taken the basis of showing relation between the two. ABPL, being a broking company, held these shares in fiduciary capacity in pool account to met settlement obligations; hence this does not establish any connect in trading of the scrip. It has been submitted that ABPL or its associates are not, directly or indirectly, connected with SGWL. * AIPL carried out jobbing transactions as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere executed between Rs. 40.50 and Rs. 40.60, except two trades of AIPL during this time. Between 10:18:58 and 10:22:42, trade rate was between Rs. 40.50 to Rs. 40.65 and thus buy order for balance 323 shares was pending. AIPL placed sell order for 1000 shares at 10:23:39 at Rs. 40.25, when trade rate of SGWL scrip was 40.50 to 40.65 and pending quantity of 323 shares in buy order of AIPL got matched with sell order of AIPL. This trade of 323 got matched at 10:23:39 i.e. at the time of placing of sell order with balance sell order quantity of 677 shares, was cancelled. This sell order was placed by AIPL at same rate as pending buy order, notwithstanding the fact that trades during that time were happening at much higher price. Thus AIPL had placed sell order for 1000 shares in SGWL scrip only with intention to execute self trade and to create artificial volumes. * Regarding alleged remaining 2 self trades executed by AIPL, it is stated that on December 1, 2009 at 15:06:50, AIPL placed sell order for 500 shares at Rs. 41.30, which was updated to 5000 at 15:06:52, without change of price, and subsequently order up further updated by lowering price to Rs. 41.20 at 15:07:21. After low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of only 25,344 shares, which was so miniscule to indulge in self trading. In response Ld. AO has stated that Appellant's order for 5000 shares at 15:06:21 at Rs. 41.35 was one of buy orders that resulted in scrip of SGWL touching upper circuit limit, when prevailing rate was lower and hence intention of Appellant was to manipulate price of SGWL scrip. Out of 12,851 shares trades at Rs. 41.35 at 15:06:21 and which price continued till 15:06:41, out of 12851 shares trades at Rs. 41.35 at 15:06:21, AIPL was on buy side for 3858 shares. Regarding continuation of this price of scrip till 15:06:41 AIPL was on buy side for 6142 shares, out of 7253 shares traded. Hence AIPL was instrumental in sustaining price of scrip at circuit limit level. Regarding market recording 1,15,636 shares, i.e. 31.34% of days total, subsequent to hitting upper circuit limit at 15:06:21, till end of market hour at 15:45:00, AIPL was on buy side for 57,642 shares i.e. 50% of market volume. Also out of 3.69 lac shares traded on December 1, 2009, AIPL was on buy side for 95,435 shares i.e. more than 25% of market volume. Further when AIPL entered orders for 45,000 shares on December 1, 2009 at 15:19:59, they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealers, out of 70 available, and at three terminals, out of 156 terminals of AIPL, were dedicated to trade in SGWL scrip, when there are more than 1500 scrips listed on NSE and BSE and also when SGWL is not a very liquid scrip; and these dealers are stated to be dealing independently, as per their own perceptions of market and scrip. In addition to more than 1500 scrip listed on NSE and BSE, AIPL deals in F&O and other segments and does trading activities and proprietary trading dealings fro Angel Group; the question arises as to why AIPL is able devote so many dealers and terminals to SGWL, when it has so many other activities to look after, unless AIPL has some unholy intentions in scrip of SGWL. 6. However, a few points need to be dealt here; which have not been raised by Ld. AO:- * How could an order be cancelled within 2 seconds of its placement, i.e. whether it is physically possible to punch in a cancellation order within 2 seconds of its being placed, since time taken to physically place or cancel an order is definitely much more than 2 seconds, while not taking account the time taken by dealer in making up his mind - based on sensing adverse price movement, etc. Cancella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prejudiced if precise charges are not leveled and hence case was remanded to SEBI. Facts in the present case are different since SCN dated July 15, 2013 before hearing of Appellant by Ld. AO and impugned order is passed thereafter and hence this case does not support Appellant's case. 8. Next case cited by Appellant and subsequently by Respondent also in H.J. Securities Pvt. Ltd. vs. SEBI (Appeal No. 76 of 2012 decided on 11.05.2012), where charges of self trade are leveled against Appellant, who was penalized for violation of regulation 3(a),(d) and 4(1), 4(2)(a) and (g) of PFUTP Regulations. The case relates to self trade and it was held by appellant that self trade happened due to operations of 19 jobbers operating through different locations and self trades were coincidence and not intention, but Tribunal held that appellant may adopt any business model, but has to ensure that whatever business model is adopted, is in conformity with regulatory framework and Appellant was held guilty of violative of PFUTP Regulations. 9. Next case cited by Appellant is Smt. Krupa Sanjay Soni & Anr. vs. SEBI (Appeal No. 32 of 2013 decided on 09.01.2014), wherein Appellants acted as a group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her trades were found violative of PFUTP Regulations, but considering her involvement in these activities as relatively less, Appellants period of restrain was reduced from 18 months to 3 months. 14. Case Adjudication Order No. BM/AO-51/2012 in respect of Angel Broking Pvt. Ltd., cited by Respondent, deals with SEBI (Stock-Brokers and Sub-Brokers) Regulations, wherein ABPL was found violative of Regulation 7 of Stock-Brokers Regulation read with Schedule II of Code of Conduct for Stock Brokers, A(2) and A(5), wherein ABPL had accepted payment from third party and not from client. This is a violation of Stock-Brokers Regulations but not of serious nature as PFUTP Regulations violation. 15. Adjudication Order WTM/PS/27/IVD/ID-06/JAN/2013 decided on January 30, 2013 deal with Angel Broking Limited (ABL), wherein ABL was found to have violative of PFUTP Regulations and Stock-Brokers Regulations, due its aid and abetment of its client in creation of artificial volumes in scrip of Sun Infoways Limited. 16. From what has been stated above, it can be conclusively concluded that Appellant executed 4 self trades on November 30, 2009 and December 1, 2009 for 9866 shares in scrip of SGWL, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n self trades were executed and hence not in nature of jobbing. 21. In view of above, AIPL have been held violative of regulation 3(a), 4(1) and 4(2)(a), (b), (e) and (g) of PFUTP Regulations and ABPL held violative in addition to regulation 7 read with Clauses A(1), A(3), A(4) and A(5) of Code of Conduct of Stock-Brokers, as specified in Schedule II of Stock-Broker Regulations. 22. Regarding quantum of penalty and considering 15(J) of SEBI Act, into consideration, it is held that disproportionate gains or unfair advantage by a entity and the consequent losses suffered by the investors, are difficult to quantify, but since Appellant has executed self trades - which do not result in change of beneficial ownership, created false volumes and manipulated price of SGWL scrip and thus sent wrong signals to gullible investors about trading in scrip - and hence considering that self trades have serious consequences and is serious violation on 4 occasions on November 30, 2009 and December 1, 2009 and since ABPL, was previously also held to violative of Stock-Brokers Regulations and PFUTP violations; exemplary penalty needs to be imposed on Appellant. 23. To sum up, facts on record reveal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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