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2020 (2) TMI 1655
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....Brokers (Second Amendment) Regulations, 2013]. The period of investigation was from December 15, 2011 to October 09, 2014 (hereinafter referred to as 'Investigation Period' / 'IP'). During the investigation period the scrip was traded on the Bombay Stock Exchange Limited (hereinafter referred to as 'BSE') and National Stock Exchange of India Limited (hereafter referred to as 'NSE'). 2. The investigation revealed that during the investigation period, MBL Company Limited, broker (hereinafter referred to as 'MBL' / 'Noticee') had executed self-trades on NSE in its proprietary account and these self-trades in negligible quantity, contributed towards total market positive Last Traded Price (LTP). SHOW CAUSE NOTICE 3. A Show Cause Notice (hereinafter referred to as 'SCN') dated July 10, 2019 was issued to the Noticee in the matter of GNCL alleging that MBL has violated Sections 12A (a), (b), (c) of SEBI Act read with Regulations 3 (a), (b), (c) and (d), 4 (1), 4 (2) (a), (e) and (g) of PFUTP Regulations, and Clauses A(2) of the Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of Brokers Regulations, 1992 read with Regulation 9 of Brokers (S....
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....No of trades LTP impact Rs. QTY traded No of trades QTY traded No of trades Vinod Shares Ltd 16.90 19,23,441 21,837 144.20 1,16,176 2,662 -127.30 3,34,963 2,335 14,72,302 16,840 6.30 Mehul H Shah 7.50 97,224 720 7.90 16,361 123 -0.40 752 7 80,111 590 0.35 Mansi Shares & Stock Advisors Pvt Ltd 6.40 5,526 430 6.70 251 122 -0.30 7 6 5,268 302 0.29 Wellington Mgt Co Llp A/C The Hartford Intl Oppr Fd 6.05 4,54,124 967 7.60 1,10,494 138 -1.55 6,923 29 3,36,707 800 0.33 Merrill Lynch Capital Markets Espana S.A. Svb 5.85 3,912 415 6.05 1,177 119 -0.20 25 4 2710 292 0.26 Millennium Stock Broking Pvt Ltd 5.75 4,32,688 1639 12.25 52,517 217 -6.50 20,551 110 3,59,620 1,312 0.54 Vaneck Associates Corporation A/C India Capital Appreciation 5.55 15,033 466 6.75 4,498 129 -1.20 361 24 10,174 313 0.30 Gkn Securities 5.50 1,97,292 501 6.10 36,029 101 -0.60 3,706 8 1,57,557 392 0....
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....:36.0000000 1 4 23/12/2011 Sell 2011122300046781 09:15:34.0000000 1000 09:15:35 1 16.50 0.15 Buy 2011122300047164 09:15:35.0000000 1 5 23/12/2011 Sell 2011122300049878 09:15:41.0000000 1000 09:15:47 1 16.45 0.15 Buy 2011122300052139 09:15:47.0000000 1 6.4. From the above table, upon analysis of order pattern, following is observed: 6.4.1. Sr.no.1: Vide order ID 2012020800042902 at 09:15:11, MBL placed buy order at market price for 1 share to match his own order ID 2012020800038329 placed at 09:15:08. The matching orders contributed to LTP of Rs. 0.55. 6.4.2. Sr.no.2: Vide order ID 2012012400054569 at 09:15:36, MBL placed buy order at market price for 1 share to match his own order ID 2012012400040557 placed at 09:15:32. The matching orders contributed to LTP of Rs. 0.25. 6.4.3. Sr.no.3: Vide order ID 2011121600122421 at 09:19:36, MBL placed buy order at market price for 1 share to match his own order ID 2011121600122349 placed at 09:19:36. The matching orders contributed to LTP of Rs. 0.15. 6.4.4. Sr.no.4: Vide order ID 2011122300047164 at 09:15:35, MBL placed buy order at market p....
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....earance of trading in GNCL market. 10.3. The Indian Regulators have themselves considered that self-trades per se are not illegal and cross trades do happen in the market in the nominal course of broking/intraday/jobbing activity. SEBI in its circular dated 08/02/2013 had clarified as under: [Reference Para 11 (b) on page 3 of the Circular] "In addition to (a) above, incentives in the form of cash payments, warrants, discount in fees, etc. may not be provided for the trades where the counterparty is self, i.e., same Unique Client Code L/CU/ is or> both sides of the transaction". Thus, at the relevant point of time SEBI itself had accepted that self-trade occur in the electronic trading system and therefore they cannot be considered illegal or illegitimate per se. 10.4. That in the meeting of Secondary Market Advisory Committee (SMAC) of SEBI held on January 30, 2014, the proposal on prevention of Self Trades was discussed "it was felt by the committee that Self-trades could be possible in the scenario when multiple traders in a broker's house may be placing buy and sell orders in the same scrip for PRO, different client or multiple Algo orders of the same brokers get marc....
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.... the LTP so as to take further necessary action. 10.12. That mere occurrence of impugned self-trades in particular scrip cannot be termed as fraudulent or manipulative. In the absence of the element of fraud/manipulative intent, the provisions of PFUTP Regulations don't get triggered. That ex-facie exceedingly insignificant quantum of trading could not impact either the price or volume of the scrip. From the data provided to MBL, it can be clearly see that MBL trades has not affected the price or volume of GNCL scrip. Therefore, in the absence of any impact on price or volume of the scrip, consequent to self-trades, MBL cannot be alleged to have violated the provisions of PFUTP Regulations. Further, there is nothing brought out on record which can even remotely demonstrate that MBL had acted malafide or that the alleged self-trades actuated by manipulative or fraudulent designs. Admittedly there is no allegation that MBL were acting in concert with anybody in the market including the promoters of the company or others who have traded in the scrip. 10.13. MBL deny the alleged violation of provisions of Regulation 3 (a),(b),(c),(d), Regulations 4(1), 4 (2) (a) (g) of PFUTP Regu....
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.... hearing on December 06, 2019. Accordingly the hearing in the matter was adjourned and MBL was directed to appear for hearing on December 06, 2019. 12. Mr. Prakash Shah, Advocate and Mr. Ranjan Dutta, Compliance Officer of MBL, Authorized Representatives ("ARs") appeared on behalf of MBL on December 06, 2019 and made oral submissions, which are as under: "......... 12.1. ARs reiterated MBL reply dated July 26, 2019. 12.2. MBL is a stock broker and mainly into intraday trading and jobbing activities. 12.3. MBL was trading in more than 500 scrips. 12.4. With regard to self-trade, it is submitted the MBL is trading from 202 terminal trough 6 different location. The details of same were attached as annexure 19 of reply dated July 26, 2019. 12.5. MBL do not have CTCL trading. MBL only do manual trading. 12.6. Single share trade is placed because to know the current price (price discovery) of scrip of GNCL then followed by large number of share trade. 12.7. GNCL is not a penny stock scrip and GNCL is a highly liquid scrip. Volume of one share will have no impact in daily volume. 12.8. The price rise of 15....
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....l in the price of GNCL shares. 13.3. That GNCL scrip had good fundamentals and volatility. Therefore no adverse inferences be drawn against MBL for carrying out trades in GNCL shares. 13.4. That MBL is dealing in the securities market on behalf of their clients and also carrying out proprietary trading on their own behalf in various scrips. In proprietary account, MBL used to carry out arbitrage/ jobbing business through the dealers employed with them. That during the investigation period, MBL was having arbitrage/ jobbing desk at their office and used to have jobbers who used to trade on their behalf. All were allotted separate terminals. 13.5. An arbitrage/Jobbing transaction is normally carried out to take benefit of the intraday price fluctuations that happen in the scrips in the same exchange or price difference in the same scrip across exchanges. This is carried out only in the scrip which are reasonably liquid and have got a reasonable volume to enable the dealer to square off the position by end of the day. The arbitrageur / jobbers based on technical analysis, puts indicative order of a small quantity on both sides at various trigger prices i.e. both buy and sell ....
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....n with either promoters and / or directors, there was no major concentration of brokers and clients at both BSE and NSE, no unfair gain or advantage has occurred to MBL and also no harm or loss has been caused to retail investors. 13.11. That GNCL scrip has been liquid throughout and highly traded. Thus, MBL execution of small trades and minor variation in price cannot disturb or impact the market equilibrium of GNCL shares on the Stock Exchange. Therefore, no adverse inferences ought to be drawn against them for carrying out trades which had no impact on the market. 13.12. That MBL transaction during pre-investigation period and post investigation period were attached as Annexure 16 of reply dated 26.07.2019. On perusal of the same, no adverse inferences be drawn against them more particularly on the alleged trading done in one share by their jobbers in GNCL shares. 13.13. The net LTP impact of all trades is Rs. 3.45 which is lowest amongst all. Thus no charge of any alleged price manipulation be levelled against MBL. 13.14. That MBL volume of trading is highest amongst all other entities and thereby gross impact is highest since the calculation of LTP is done for each....
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....+1,000 quantity @Rs. 16.35 at 09:15:34 total +2,000. Thereafter, placed a sell order -1,000 quantity @Rs.16.50 at 09:15:35. Thereafter, balance quantity was sold later at Rs. 16.45 till 09:15:43. A fresh order of -1,000 quantity was placed @ Rs.16.45 at 09:15:45. In order to check the system, MBL placed a single quantity. 13.17.4. Date: 24.01.2012 Before start of the trading in the morning on 24.01.2012, MBL checked GNCL open price and close price of previous day i.e. 23.01.2012 (NSE). GNCL open price 23.01.2012 - Rs.22.25 GNCL close price 23.01.2012 - Rs.22.05 MBL had started buying from 09:15:07 and till 09:15:10 MBL had an open position of 2,991. Now in order to sell the open position, MBL placed a sell order for 2,000 quantity of Rs.22.10 at 09:15:32. In order to check the system, MBL bought a single quantity at 09:15:36. 13.18. MBL alleged trades had no impact on market price of the GNCL shares. An analysis of MBL trade price vis-a-vis high price of the day shown as below: Comparison between Trade price and High price of day Date Trade Price (Rs.) High price of the day (Rs.) 08.02.2012 24.00 24.40 24.01.2012 ....
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....are during investigation period is not in much variance to the pre and post investigation period as can be seen from the details / data mentioned in table under Para 2 and 3 of the SCN. 13.25. That SEBI has made policy to take lenient view on market participant on execution of self-trade. Presently execution of self-trade is prevented by exchanges itself hence recurrence is not possible. 13.26. That MBL main activity is to carry out trade in proprietary account hence any directions as mentioned in the SCN shall result into grave loss, harm and damage to MBL and also to its employee and their family members also. FINDINGS AND CONSIDERATION: 14. I have perused the SCN, reply and other materials on the record. On perusal of the same, the following issues arise for consideration. Each issue is dealt with separately under different headings. (i) Whether the MBL had entered into self-trades as alleged in the SCN? (ii) If issue no. 1 is determined in affirmative, then whether such self-trades executed by MBL have been entered into intentionally / with manipulative intent? (iii) If issue no.2 is found in affirmative, then whether MBL have violated the....
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....ceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Regulation 4:-Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; ....
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....ted that MBL has not disputed the fact that, at NSE, it had executed 5,041 self-trades for 34,535 shares of GNCL i.e. 0.04% of total volume traded on market, even though MBL had contended that alleged self-trades in proprietary account were non-intentional, non-manipulative, inadvertent and accidental, the percentage of self-trade by MBL in the scrip of GNCL is negligible and had no effect on the liquidity of GNCL which was highly liquid. 20. I therefore find that MBL had executed self-trades in the scrip of GNCL. ISSUE No. 2 - If issue no. 1 is determined in affirmative, then whether such self-trades executed by MBL have been entered into intentionally / with manipulative intent? 21. Vide order dated July 14, 2006, Hon'ble Securities Appellate Tribunal (hereinafter referred to as "SAT") in the matter of Ketan Parekh v. SEBI, stated that ".......Any transaction executed with the intention to defeat the market mechanism negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism, will depend upon the intention of the parties which could be inferred from the attending circumstances of t....
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....020800042902 09:15:11.0000000 1 2 24/01/2012 Sell 2012012400040557 09:15:32.0000000 2000 09:15:36 1 22.10 0.25 Buy 2012012400054569 09:15:36.0000000 1 3 16/12/2011 Sell 2011121600122349 09:19:36.0000000 2000 09:19:36 1 16.65 0.15 Buy 2011121600122421 09:19:36.0000000 1 4 23/12/2011 Sell 2011122300046781 09:15:34.0000000 1000 09:15:35 1 16.50 0.15 Buy 2011122300047164 09:15:35.0000000 1 5 23/12/2011 Sell 2011122300049878 09:15:41.0000000 1000 09:15:47 1 16.45 0.15 Buy 2011122300052139 09:15:47.0000000 1 23.5. During the course of hearing MBL submitted that single share trade is placed to check the current price of scrip of GNCL (i.e. price discovery) then followed by large number of share trade. For the said submission, MBL was advised to explain logically and demonstrate from their order placement behavior that 1 shares trade for price check is followed by large number of share trades. Further, if 1 share order was the split order of large share order, then MBL is also advised to explain and demonstrate the ....
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....rom 202 terminal through 6 different location with numbers of BSE and NSE Ids. 23.9. In this regard, I note that out of 5,041 self-trades, 4,327 self-trades for 11,828 shares were executed through the same terminal ID / user ID i.e. buy and sell order was placed by same person/dealers manually. Further, from 5,042 self-trades, the positive LTP contribution was Rs. 289.35 i.e. 12.64% of total market positive LTP. I also note that MBL accepted that single share self-trade was placed by it though according to it, to check the current price of GNCL by impermissible means. Thus, I am of the view that MBL had intentionally, through manual trading, placed the single share self-trade from same terminal to increase the price of GNCL for its own benefit. 24. From the above, I note that during the period December 15, 2011 to February 24, 2012, MBL had continuously placed single share buy order immediately after placing sell order of large quantity at a price higher than the last traded price. These single share order got matched with its own sell order of large quantity resulted into self-trade of 1 shares. This single share self-trades had increased the price of shares of GNCL, which b....
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....hich has precisely happened in the present matter, in such a scenario, volume created by such trades / self-trades in the scrip is irrelevant / immaterial. Thus, considering at the pattern of trading done by MBL and the fact that MBL had derived benefit through that particular scheme or nature of trading, I am of the view that the trading pattern adopted by MBL is of a manipulative and unfair nature and would fall within the ambit of the PFUTP Regulations. Hence, I do not any merit in the submission of MBL that single share order placement could not impact either the price or volume of the scrip. ISSUE No. 3- If issue no.2 is found in affirmative, then whether MBL have violated the provisions of Sections 12A(a), (b), (c) of SEBI Act read with Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of PFUTP Regulations? 27. I note that during the period December 15, 2011 to February 24, 2012, MBL through 5,041 self-trades in negligible quantity had contributed Rs. 289.35 towards positive LTP i.e. 12.64% of total market positive LTP. The modus operandi adopted by MBL is that it had continuously placed single share buy order immediately after placing sell order of....
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....ares of GNCL in its proprietary account, does not arise. Thus, I am of the view that alleged violation of provisions of Clauses A (2) of the Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of Brokers Regulations, 1992 read with Regulation 9 of Brokers (Second Amendment) Regulations, 2013 against MBL does not get attracted in view of the finding on the intentional self-trades by MBL. ISSUE No. 5 - If issue no. 3 & 4 is in affirmative, what directions, if any should be issued against MBL? 30. Section 11 of SEBI Act casts a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. For achieving such object, it has been authorised to take such measures as it thinks fit. Thus, power to take all measures necessary to discharge its duty under the statute which is a reflection of the objective disclosed in the preamble has been conferred in widest amplitude. Pursuant to the said objective, PFUTP Regulations have been framed. The said Regulations apart from other things aims to preserve and protect the market integrity in order to boost investor confidence in th....