Suspicious trade patterns can expose brokers to FUTP liability and breach of diligence duties despite client instructions.

A broker may be liable for fraudulent and unfair trade practices where repeated small trades in an illiquid scrip, including self trades and fictitious trades, indicate a structured attempt to support and inflate price. The analysis states that client instructions do not excuse conduct where the trade pattern itself is suspicious and the broker fails to act with due care, skill and diligence expected of a registered intermediary. On that basis, violation of the FUTP Regulations and the broker code of conduct was upheld, while the penalty for the FUTP breach was reduced. The substantive findings of market manipulation and lack of diligence were sustained.

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Issues: Whether the appellant broker had knowingly assisted in manipulative trading that artificially inflated the scrip price and thereby violated the FUTP Regulations, and whether the broker failed to exercise the due care, skill and diligence required under the broker code of conduct, warranting the penalties imposed.

Analysis: The trading pattern showed repeated purchase of very small quantities, often a single share, above the last traded price in an illiquid scrip whose price rose sharply during the investigation period. The circumstances, including the pattern of orders, the absence of genuine market justification, and the presence of self trades and fictitious trades, supported the finding that the appellant facilitated a structured price-support mechanism rather than ordinary market activity. A broker is expected to remain vigilant when suspicious patterns emerge and cannot rely merely on client instructions where the trades themselves indicate manipulation. The appellant's conduct therefore amounted to assistance in fraudulent and unfair trade practices and also showed lack of the diligence and care expected of a registered intermediary.

Conclusion: The finding of violation of regulations 3 and 4 of the FUTP Regulations and the broker code of conduct was upheld, but the penalty for the FUTP violation was reduced.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the substantive findings of market manipulation and lapse in broker diligence were sustained.

Ratio Decidendi: A broker who facilitates a suspicious pattern of small, repetitive trades that supports artificial price rise in an illiquid scrip can be held liable for fraudulent and unfair trade practices and for breach of the duty of due diligence, even if acting on client instructions and earning only brokerage.

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