TMI BlogOrder Under Section 11 of the Securities Contracts (Regulation) Act, 1956 Superseding the Governing Board of Ahmedabad Stock ExchangeX X X X Extracts X X X X X X X X Extracts X X X X ..... at they have issued a circular warning members to refrain from unofficial trading. Subsequently, on September 17, 2002, ASE submitted a report on the unofficial trading to SEBI. The said report of ASE was annexed as Annexure A to the Show Cause Notice dated 25.9.2002. 2.0 The said report of ASE dated September 17, 2002, stated that: a) There is no unofficial market operational within the official premises of the Stock Exchange, Ahmedabad and that there is no assembly of members/non-members either during the trading hours or after closure of the trading session for any such activity. b) In one open space in Kamadhenu Complex, Panjarapole, where the Stock Exchange is located, there is a regular assembly of persons after close of trading session. c) An official of the exchange deputed to observe the activities during the unofficial trading session reported that - - members of their exchange were not participating in the unofficial market - a number of other persons who are not connected with the exchange do participate in the said market - the duration of the session is around one hour everyday and the process of settlement among participants is payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Members of ASE are not participating in such unofficial market 4.0 Thereafter, vide letter dated September 20, 2002, ASE informed SEBI that they have lodged a complaint with the Ellis Bridge Police Station with a request to do the needful to prohibit the illegal transactions. However, they failed to confirm that unofficial trades in the premises of the stock exchange were prohibited. 5.0 Besides the failure to prohibit unofficial trading, in a matter where SEBI had initiated Enquiry proceedings against 20 brokers for indulging in unauthorized carry forward transactions, ASE referred the matter to the Disciplinary Action Committee and levied a penalty of ₹ 1000.00 each on them. 6.0 In view of the report of the inspecting officer and the failure of ASE to curb the unofficial trading in the premises of the stock exchange, a snow cause notice was issued on September 25, 2002 under section 11 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCRA ) to the Governing Board of ASE advising them to show cause why appropriate action including supersession should not be taken against them. Alongwith the said show cause notice the report o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of ASE also sought a personal hearing before me in this regard. Personal hearing was granted to members of the Governing Board on November 20, 2002. They submitted in their reply dated 9.10.2002 that they have filed a police complaint and are taking all necessary action to prohibit unofficial trading in securities. In view of the submission made by the Governing Board in their reply that unofficial trading had stopped, an inspection team was deputed by SEBI on November 15, 2002, to confirm the veracity of the said submission. The inspecting team during the inspection on 15.11.2002 found that an open outcry system of trading was being carried out by members at the basement and near HDFC Bank in the premises of ASE. The members of the said inspecting team were present during the personal hearing as on 20.11.02 before me in case the members of the Governing Board desired to put any questions to the said inspecting team. The inspecting team stated before me and members of the Governing Board that during the said inspection on 15.11.2002, they had observed that unofficial trading was taking place in the premises of ASE even during trading hours. It was submitted on behalf of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 1992 and notification no 183 (E) dated 1st March , 2000 issued under section 29A of the said Act, the Securities and Exchange Board of India (hereinafter referred to as the Board ) being of the opinion that it is necessary to prevent undesirable speculation in securities in the whole of India, hereby declare that no person in the territory to which the said Act extends , shall, save with the permission of the Board, enter into any contract for sale or purchase of securities other than such spot delivery contract or contract for cash or hand delivery or special delivery or contract in derivatives as is permissible under the said Act or the Securities and Exchange Board of India, Act , 1992 and the Rules and Regulations made under such Acts and Rules , Regulations and Bye-laws of a recognized Stock Exchange : Provided that any contract for sale or purchase of government securities, gold related securities, money market securities and ready forward contracts in debt securities entered into on the recognized stock exchange shall be entered into in accordance with - a) the rules or regulations or the bye-laws made under the Securities Contract (Regulations) Act, 1956 (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y noticees that such transactions were outside the stock exchange, in view of the provisions of Section 16, 18A, 19 of SC(R) Act and notification issued under Section 16, it is the duty of the Exchange to prevent such transactions. 11.0 I find that the exchange has not complied with the directives / circulars etc. of SEBI within the stipulated time-frame and has shown disregard to deadlines set by SEBI in complying with its directives. In this regard, I also note that SEBI has issued two warning letters dated April 24, 2002 July 05, 2002 in the current financial year for non implementation of system based gross margin in cash market and disruption in trading. 12.0 I find that ASE failed to comply with the order issued by SEBI under section 8 of SC(R) Act dated January 10, 2002 wherein the exchange was directed to amend their Rules, Articles etc. within a period of two months to give effect to the segregation of ownership and trading membership from management of stock exchange. Thereupon SEBI was constrained to amend the rules of ASE vide notification dated April 16, 2002 to give effect to the same. 13.0 It may be observed that the Joint Parliamentary Committee in its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed that unofficial trading is being carried on in and near to their premises. One step which the ASE has taken is to inform the police. During the hearing also, on behalf of ASE it was mentioned that beyond this what could they do to curb the unofficial badla? If SEBI has to make suggestions and bring it to the notice of the exchange that unofficial badla is being carried on in or near to their premises, then surely, it is possible for a stock exchange which is a regulatory body to regulate and control the contracts under SC(R) Act and bye laws of the Exchange to ensure that such activities are not carried on in their vicinity. The Stock Exchanges need to put security guards in place, have continuous monitoring by dedicated officers, warn brokers, take action, all to ensure that there is no unofficial badla. A Governing body which cannot even think of ways and means to ensure that illegal activities are not being carried on does not deserve to continue. Unofficial badla works not only to the detriment of stock brokers, but also to the detriment of investors and the securities market. Therefore, I am of the opinion that it is essential that immediate measures are taken to ens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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