TMI Blog2010 (7) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... fter referred to as Notice ) traded for some of the said interconnected clients viz. Amar Adhav, Umesh Choukekar, M/s New Leader Trading Company Pvt. Ltd., M/s Vintel Securities Ltd., M/s Rightstar Trading Compnay Pvt. Ltd. Some of the said client s of the Notice viz. Amar Adhav, Umesh Choukekar, M/s Rightstar Trading Compmany Pvt. Ltd. have also traded in the scrip of MCL which is also manipulated scrip. Details of inter connection of said client s was provided to Notice as an Annexure VI to Show Cause Notice (SCN). During the period from February 10, 2005 to September 09, 2005, out of 16,96,170 shares so purchased by Notice, 8,48,051 shares were found to have been purchased for connected clients which accounted for 50% of its trades. During the period July 08, 2005 to September 16, 2005 it had the highest concentration of around 21% in terms of gross purchases in the scrip of KCL. 3. SEBI has initiated adjudication proceedings under the SEBI Act against Notice on account of allegedly violating the provisions of Clause A(2) of Code of Conduct for stock broker s as specified in Schedule II under Regulation 7 of SEBI (Stock Broker and Sub Broker) Regulations, 1992 (hereinafter r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities market. We do not advise our clients to trade in any particular stock. d. From February 10, 2005 to September 16, 2005 we had undertaken a number of trade instructions from about 62 clients including 5 alleged connected clients. The alleged connected clients were trading in other scrips during the said period. M/s. Vintel Securities traded in 163 scrips, Amar Adav in 53 scrips, Umesh Choukekar in 37 scrips, Rightstar Trading Co. Pvt. Ltd. in 6 scrips and New Leader Trading Co. Pvt. Ltd. in 5 scrips. e. The financial results of KCL showed an announcement in July 2005 that the company had received two order s from NPDCL and EPDCL. This along with the announcement of approval of split up or subdivision of equity shares of KCL by its Board of Directors in mid August 2005 caused lot of anticipation in the market in the said scrip. The financial results of KCL for the quarter ending June 30, 2005 as compared to last quarters appeared to be phenomenal which would have resulted in upsurge in the price of its shares in secondary market. The resulting spurt in price of the scrip of KCL was due to abovementioned reasons and there was nothing unusual in such trading in a uprising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be 100% of broker's turnover in that specific scrip. It is to bring to your kind notice that no proprietary trades were executed by ISL in the subject scrip. The point to be noted is that the gross buy turnover of the connected entities identified by SEBI (total 5 nos.) was 2.6% of the gross buy tu rnover on the Exchange during the said period, which is very much an insignificant percentage. It is evident that allowing the alleged persons to trade in the given scrip was in line with our duties of a stock brok er to adhere to client instructions and was in the normal course of business in the securities market. In this regard we have only followed the client s instructions and have faithfully executed the orders for buying and selling of securities as mandated in clause B(1) of Schedule II of the SEBI (Stock Broker and Sub Brokers) Regulations, 1992 and have only played a role restricted and limited to that of a market intermediary . b. It may be noted that we are not expected to commence trading on behalf of a clients with suspicion, in the absence of anything to excite our suspicion. In the case under reference we had executed trades on behalf of the clients, as referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular instant which is in accordance with clause B(1) of the Code of Conduct for Stock Brokers which states that : A stock broker in his dealings with the clients and the general investing public shall faithfully execute the orders for buying and selling of securities at the best available market price.... ; (iii) All the transactions on behalf of the clients as referred to in the Notice were executed by us in good faith for normal brokerage in consonance with Rules Regulations of the Respondent / Stock Exchange in the normal course of business. It ma y be appreciated that it is not practically feasible for a broker dealing for a large clientele to get into the details as to why a particular Client is trading in particular scrip and with what intention. That, whether to trade or not and in which scrip to trade and the quantum to be traded, is a matter to be decided by the Client and the Broker in the normal course cannot ask a client to trade or not to trade in a particular way. In so far as we are concerned we had ensured at all points of time that we had requisite margins from the clients and the scrips in which they wanted to trade were available for trading and di d not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt knew about the nature of the transactions but it did not do so. As a broker, the appellant would welcome any person who comes to buy or sell shares. The Board in the impugned order while drawing an inference that the appellant must have known about the nature of the transactions has observed that the appellant failed to enquire from its clients as to why they we re wanting to sell the Securities. We do not think that any broker would ask such a question from its clients when he is getting business nor is such a question relevant unless of course, he suspects some wrong doing for which there has to be some material on the record. - Kasat Securities Limited V/s SEBI, SAT Appeal No 27 of 2006 (e) ...Merely because the appellant acted us a broker would not lend us to the conclusion that he had knowledge of the wrong doing. It is true that the trades have been found to be synchronised and fictitious but those were executed by the parties and it was on their instructions that the brokers acted.... Millenium Equities (Indi a) Pvt Ltd v SEBI 8. Considering the facts of the case, it was decided to conduct an inquiry in the matter and the Noticee was granted an opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also observed from the records that the connected clients were trading in various other scrips through the Noticee during the said Investigation Period. The Noticee had merely act ed as an agent of the said clients and carried out orders on screen based trading mechanism of the exchange. 12. Further, there is no proof available on record to show that the Noticee had prior understanding with the connected clients to manipulate the said scrip. In absence of any additional evidence other than trading for connected clients it is difficult to establish the violation of Clause A(2) of code of conduct of said regulation by the Notice. I agree with the submissions of the Noticee that due diligence means doing everything reasonable as a prudent man would exercise in the conduct of his own affairs. I have carefully examined a ll the case laws cited and submitted by the Noticee and I am in conformity with the views expressed therein. Moreover, in the present matter there is neither a charge of manipulation of the said scrip against the Noticee nor there is proof of apparent connection between the Noticee and KCL/ or between the Noticee and said connected clients except client-broker relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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