TMI Blog2020 (9) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... reversed to the same party in a lower price within a fraction of seconds or few minutes. We find that contracts got matched between the same parties. We fail to understand as to why the Appellants who made the transactions repeatedly incurred substantial losses within a few minutes. Given the fact that there was proximity of time between buy and sell orders one can reasonably point to some kind of manipulative exercise with prior meeting of minds especially when one can see it plainly that it was a clear case of synchronised trading namely that a synchronised trade is one where the buyer and seller enter quantity and time of shares they wish to transact at the same time. From the aforesaid cumulative analysis of the reversed transactions with the counter party, quantity, time and significant variation of the price clearly indicates that the trades were non-genuine and had only misleading appearance of trading in the securities market without intending to transfer the beneficial ownership. One finds it to be naive to presume that the perception of the two counter parties to a trade changed within few seconds/minutes and positions were interchanged and the contracts were changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together by a common order. All the Appellants have filed the appeals against the order of the Adjudicating Officer imposing a penalty for violation of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations ). 2. The facts leading to the filing of the present appeals are that Securities and Exchange Board of India (hereinafter referred to as SEBI ) observed large scale reversal of trades in the Stock Options segment of BSE Limited (hereinafter referred to as BSE ) leading to creation of artificial volumes. Accordingly, SEBI conducted an investigation for the period from 1st April, 2014 to 30th September, 2015 in the trading activities in the illiquid Stock Options at BSE. The investigation report revealed that a total of 2,91,643 trades were found to be non-genuine trades which was 81.38% of the total trades executed in the Stock Options Segment of BSE. The investigation report further revealed that these non-genuine trades resulted in the creation of artificial volumes to the tune of 826.21 crore units or 54.68% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had indulged in the execution of reversal trades in Stock Options Segments with the same entities on the same day thereby creating artificial volumes leading to false and misleading appearance of trading in illiquid stock options at BSE. The Appellants have thereafter filed the present appeals. 8. We have heard Mr. Prakash Shah, Advocate assisted by Mr. Kushal Shah, Chartered Accountant for the Appellant and Mr. Gaurav Joshi, Senior Advocate assisted by Mr. Abhiraj Arora and Ms. Rashi Dalmia, Advocates for the Respondent in Appeal No.212 of 2020, Mr. Saurabh Bacchawat, Advocate assisted by Mr. Aditya Bhansali, Ms. Khyati Bhandari, Advocates with Ms. Nirali Mehta, Practicing Company Secretary for the Appellant and Mr. Abhiraj Arora, Advocate assisted by Ms. Rashi Dalmia, Advocate for the Respondent in Appeal No.215 of 2020, Mr. Deepak Dhane, Advocate for the Appellant and Mr. Gaurav Joshi, Senior Advocate assisted by Mr. Abhiraj Arora and Ms. Rashi Dalmia, Advocates for the Respondent in Appeal No.229 of 2020 and Mr. Shrey Sancheti, Advocate assisted by Ms. Aparna Wagle, Advocate for the Appellant and Mr. Abhiraj Arora, Advocate assisted by Ms. Rashi Dalmia, Advocate for the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different price resulting in losses to the Appellant. It was contended that the trades executed created artificial volumes leading to false and misleading appearance of trading in the illiquid stock options at BSE. It was also contended that the only trades carried out by the Appellants were not negligible and comparison to the total trades is patently erroneous. The learned Senior Counsel further contended that the controversy in the present case is squarely covered by the decision of the Supreme Court in the case of Rakhi Trading (SEBI vs Rakhi Trading (CA No. 1969/2011, order dated February 8, 2018). 11. Having heard the parties at some length we find that the reversal of trades are considered to be non-genuine trades if it involves an entity reversing its buy or sell positions in a contract with substantial buy or sell position with the same counter party during the same day. To explain the trades undertaken by the Appellants it would be appropriate to give an illustration. The counter party Bhushan Airways Services Pvt. Ltd. issued a buy order of 2,97,000 units at 11:51:39:620808. The Appellant Global Earth executed the sell order at 11:51:39:529788. Immediately, thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs are placed at unattractive prices which does not reflect the value of the underlying asset. d. An intentional trading for loss per se, is not a genuine dealing in securities. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trades, it is not genuine and the same is an unfair trade practice. e. In case of trade in a scrip in cash segment, there is a physical delivery of the asset. In the derivative segment there is a change of rights in a contract. In synchronized and reverse trades, there is no genuine change of rights in the contract. 15. To dwell further, the Supreme Court in Rakhi trading held: 31 ..In the instant case, one party booked gains and the other party booked a loss. Nobody intentionally trades for loss. An intentional trading for loss per se, is not a genuine dealing in securities. The platform of the stock exchange has been used for a non-genuine trade. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in preplanned and rapid reverse trades, it is not genuine; it is an unfair trade practice. and further held :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and further held that: 58. A synchronized transaction will become illegal or violative of the Regulations if it is executed with a view to manipulate the market or if it results in circular trading or is dubious in nature and with a view to manipulate the price or volume of the scrip or with some ulterior purpose. 19. In the light of the aforesaid, buying and selling of equivalent quantities within the day may not be illegal but if the trades were done with ulterior purposes then the same are non-genuine. In the instant case, we find that one party is making a profit and the other party is making a loss. In addition, there is proximity in the time of sell orders at a higher price and the same quantity is being reversed to the same party in a lower price within a fraction of seconds or few minutes. We find that contracts got matched between the same parties. We fail to understand as to why the Appellants who made the transactions repeatedly incurred substantial losses within a few minutes. Given the fact that there was proximity of time between buy and sell orders one can reasonably point to some kind of manipulative exercise with prior meeting of minds especially when one ..... X X X X Extracts X X X X X X X X Extracts X X X X
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