Transparent negotiated cross deals via exchange matching mechanism do not, without manipulation, amount to fraudulent trade practices.

Negotiated and cross deals executed through the exchange screen under the price and order matching mechanism were held not to constitute fraudulent or unfair trade practices where the trades were delivery based, transparently executed, and unsupported by any specific allegation of manipulation. The governing circular recognised such execution as a valid mode of dealing, so mere matching of buy and sell orders did not establish breach of the brokers' code of conduct. On that basis, the suspension order was unsustainable and was set aside.

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Issues: Whether negotiated and cross deals executed through the stock exchange screen in the price and order matching mechanism, without any allegation of manipulation, amounted to a violation of the prohibition against fraudulent and unfair trade practices and the brokers' code of conduct, justifying suspension of registration.

Analysis: The trades were pursuant to prior negotiation between the buyer and sellers and were executed on the exchange screen in the prescribed price and order matching mechanism. Such a method was recognised by the Board's circular as a valid and transparent mode of executing negotiated deals. Mere matching of buy and sell orders, by itself, did not establish fraudulent conduct where the trades were delivery based and there was no specific allegation that the trades were manipulated. Since the transactions complied with the exchange mechanism contemplated by the circular, they did not attract the prohibition invoked against the brokers, nor did they amount to breach of the code of conduct.

Conclusion: The finding of violation was unsustainable and the suspension order could not be upheld.

Final Conclusion: The appeals succeeded and the impugned order of suspension was set aside.

Ratio Decidendi: Negotiated or cross deals, when executed transparently through the exchange's price and order matching mechanism in accordance with the governing circular and without evidence of manipulation, do not by themselves constitute fraudulent or unfair trade practices.

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