Broker diligence in self trades and synchronized trades upheld, with penalty found proportionate to the proven breach.

A registered stock broker was found to have breached the duty of due skill, care and diligence by permitting repeated self trades and synchronized trades in client dealings, including trades executed from the same terminal and arrangements where the broker functioned as both broker and counterparty broker. The conduct was treated as harmful to market integrity, and the violation was proved. The penalty challenge also failed because the lapse was not trivial, the failure continued over a substantial period, and the sanction was assessed within the statutory maximum, so the penalty was held proportionate and the appeal was dismissed.

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Issues: (i) Whether the broker failed to exercise due skill, care and diligence by allowing self trades and synchronized trades in the client's dealings; (ii) Whether the penalty imposed was disproportionate to the violation established.

Issue (i): Whether the broker failed to exercise due skill, care and diligence by allowing self trades and synchronized trades in the client's dealings.

Analysis: Repeated trades between the client and his wife, including trades executed from the same terminal and trades where the broker acted as both broker and counterparty broker, established that the broker did not maintain the vigilance expected of a registered stock broker. Such self trades and synchronized trades were treated as harmful to market integrity and as conduct contrary to the duty to exercise due skill, care and diligence under the applicable code of conduct and regulations.

Conclusion: The charge of violation was proved against the broker.

Issue (ii): Whether the penalty imposed was disproportionate to the violation established.

Analysis: The violation was not viewed as a trivial lapse because the broker failed to detect repeated self trades over a substantial period. The penalty was assessed in the context of the statutory maximum and the nature of the breach, and the plea of disproportionality was rejected.

Conclusion: The penalty was held to be proportionate and justified.

Final Conclusion: The impugned penalty order was sustained and the appeal failed.

Ratio Decidendi: A stock broker is bound to exercise continuous due diligence to prevent self trades and synchronized trades that undermine market integrity, and a penalty within the statutory limits will not be treated as disproportionate merely because the broker's overall turnover is large.

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