TaxTMI 
TaxTMI 
2020 (2) TMI 1655
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....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 (Second Amendment) Regulations, 2013. Vide said ....
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....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 0.27 Quadeye Securities Pvt Ltd 4.60 4,58,765 2,309 7.75 48,306 152 -3.15 19,232 55 3,91,227 2,102 0.34 Mbl & Co. Limited 3.45 87,46,016 63,924 585.50 4,30,108 10,422 -582.05 17,62,425 10,443 65,53,483 43,059 25.57 Total Top 10 Entities 67.55 1,23,34,021 93,208 790.80 8,15,917 14,185 -723.25 21,48,945 13,021 93,69,159 66,002 34.54 Rest Entities -58.10 6,52,14,750 2,40,881 1,498.70 87,89,487 2....
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....et 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 price for 1 share to match his own order ID 2011122300046781 placed at 09:15:34. The matching orders contributed to LTP of Rs. 0.15. 6.4.5. Sr.no.5: Vide order ID 2011122300052139 at 09:15:47, MBL placed buy order at market price for 1 share to match his own order ID 2011122300049878 placed at 09:15:41. The matching orders contributed to LTP of Rs. 0.15 7. It was also observed that the broker for these trades on buy and sell side was MBL. MBL acted as buy and sell broker of MBL i.e. itself for its trades. Since MBL was the client as well as the stockbroker, the aforesaid self-trades were done in its proprietary account. Out of 5,041 self-trades, 4,327 self-trades for 11,828 shares by MBL were executed from the same terminal ID. 8. It ....
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....mate 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 marched without any intent of self-execution, creation of artificial volume, manipulative etc.". In this context the committee including SEBI officials recommended to SEBI to allow self-trades if it does not involve of any manipulative self-trades, synchronized trading, price manipulation, illegitimate profit and in case of nothing of the above then occurrence of self-trade need to be condoned. 10.5. That it was in year 2015, in order to address the need of preventing impugned 'self-trades' the NSE & BSE introduced the Self Trade Prevention Check mechanism in equity segment wherein automated system itself block buy/sell order from commonly owned accounts. Thereby, it effectively prevents 'self-trades' order from matching with another order from same ID. There....
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....rate 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 Regulations and Clause A(3), A( 4) & A(5) of Broker Regulations. That MBL did not buy, sell or otherwise deal in shares of GNCL scrip in fraudulent manner. MBL had placed order in shares of GNCL scrip in normal and ordinary course of our intraday/jobbing/arbitrage activity which was in due compliance of all rules and regulation prescribed by regulator from time to time. 10.14. MBL refer to and rely upon three recent Adjudication Orders of SEBI pertaining to allegation of Self-trades wherein respective Show Cause Notices was disposed-off without imposing any penalty on MBL & Company Limited. The said orders were in respect of MBL in the matter of Alchemist Limited, Omaxe Limited and Twilight Litaka Pharma Limited. The copy of said orders are enclosed. 10.15. The impugned trade....
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....y 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 paisa as compare to daily high and low price rise is very insignificant. 12.9. Value of self-trade is very insignificant. 12.10. Most of the trades executed by MBL is at market price and had no impact on LTP. Out of approximately 87 lakh traded shares, only approx. 4 lakh shares have impact on positive LTP and approx. 17 lakh shares had impact on negative LTP and approx. 65 lakh shares (more than 70% MBL trading) had zero impact on LTP. Thus, the intention of MBL was not of manipulation of price but the intention was of intraday trading. 12.11. The thought process of MBL was of putting the trades is without disturbing the market equilibrium. Therefore, considering MBL innocent trading pattern, further there is no charge of synchronized trading and circular trading. It is humble request that benefit of doubt may be given to MBL and exonerated from 1....
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....ich 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 orders. If an order gets executed on say buy side then the other orders are entered on the buy side only before cancelling the orders of sell side since cancelling an order is more cumbersome procedure than entering a fresh order and time is of essence in the stock market. In this scenario, buy orders of the same arbitrageur / jobber matches with sell orders of the same arbitrageur/ jobber although there is no malafide intention on the part of arbitrageur/ jobber. In addition, the arbitrageur/ jobber also bears the transaction charges, turnover tax etc. of both sides. In view of the same, no adverse inference may be drawn for the trading carried out by MBL in the scrip of GNCL. 13.6. That MBL have been carrying on the broking activities as market intermediary since long with due diligence, fairness and in accordance with the provisions of the law. MBL have never defaulted in meeting their payment or ....
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....s 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 trade affecting LTP. Therefore no adverse instances be drawn against MBL for higher gross LTP impact as shown in Para 3 of the SCN. 13.15. That against net LTP impact of Rs. 3.45, the gross LTP of around Rs. 585/- as calculated for each trade having impact on LTP has no relevant and significance. 13.16. That the % of self-trades quantity to market volume is meager 0.04%. Hence, no adverse inferences be drawn against MBL on the alleged self-trades. 13.17. In Para 4(ii) of the SCN an illustrative list of alleged self-trade for 1 shares which had alleged to have contributed to the highest LTP are furnished in a tabular data. MBL date wise analysis based on recollection event is furnished as under: 13.17.1. Date: 08.02.2012 Before start of the trading in the morning on 08.02.2012, MBL checked GNCL open price and close price of previous day i.e. 07.02.2012 (NSE). GNCL open price 07.02.2012 - 24.80 GNCL close pric....
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....rice 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 22.10 22.40 16.12.2011 16.65 17.00 23.12.2011 16.50 16.70 23.12.2011 16.45 16.70 13.18.1. On perusal of above table, it is submitted that MBL trade has not made much any impact on price of GNCL share. 13.19. The comparison between differences in LTP as alleged against MBL vis-a-vis variation in price during the day is as under: Date Diff. in LTP by MBL trade Diff. in LTP during the day 08.02.2012 0.55 0.95 24.01.2012 0.25 0.65 16.12.2011 0.15 0.80 23.12.2011 0.15 1.20 13.19.1. On perusal of above table, it is submitted that difference in LTP during the day is much more than difference in LTP by MBL trade. 13.20. Though there is allegation of the contribution to highest LTP by way of self-trade, it is pertinent to mentioned that during those days MBL have carried out large volume of trading at the BSE and NSE. Further, there was a large volume in the market on those days. Hence, the scrip was highly liquid. Therefore, MBL impugned trades do not have any impact at all whatsoever. Further average rate of MBL trades falls much in the range....
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....her MBL have violated the provisions of 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? (iv) If issue no.1, 2 & 3 is found in affirmative, then whether MBL by acting as broker and counterparty broker for self-trades in its own account on NSE, has failed to exercise due skill and care, thereby violated the 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? (v) If issue no. 3 & 4 is in affirmative, what directions, if any should be issued against MBL? 15. Before moving forward, it will be appropriate to refer to the relevant provisions of SEBI Act, 1992, PFUTP Regulations, 2003, Brokers Regulations, 1992 and Brokers (Second Amendment) Regulations, 2013 which read as under: SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control: Section 12A: No person shall directly or indirectly:- (a) use or employ, in connection with the issue, purchase or....
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....e price of a security; (f) ..........; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; Brokers Regulations, 1992 Stock brokers to abide by Code of Conduct. Regulation 7. The stock broker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II. SCHEDULE II Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 CODE OF CONDUCT FOR STOCK BROKERS [Regulation 7] A. General. (1) ............ (2) Exercise of due skill and care: A stock-broker shall act with due skill, care and diligence in the conduct of all his business. Brokers (Second Amendment) Regulations, 2013 Regulation 9: Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely: (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; ISSUE No. 1- Whether MBL had entered into self-trades as alleged in the SCN? 16. I note that Self-trades are trades executed on the stock market in which both the buyer and the seller are the same entity. Self-trades do not ....
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....ion in securities without intention of performing it or without intention of change of ownership of such security. Since self-trades does not result in beneficial ownership, the same comes within the sweep of Regulation 4(2) (g) of PFUTP Regulations. However, mere occurrence of self-trades cannot be considered as per se illegal in the absence of any other attending circumstances to prove manipulation or intent to defraud as is done in cases of synchronized trades. Therefore, in all matters of self-trade, an assessment has to be made regarding whether the said trade was intentional or unintentional on the basis of supporting evidence / attending circumstances, and the manipulation caused by indulging in self-trades should be clearly brought out. It is relevant to note that SEBI has already laid down in its policy on self-trade dated May 16, 2017 (hereinafter referred to as "Policy") that intention is a sine qua non for establishing manipulation in case of self-trades, and that accidental/unintentional self-trades are not covered under the PFUTP Regulations. 23. In order to determine the intention of MBL regarding execution of self-trades, following is observed from the documents av....
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.... quantity buy order at 09:19:36. During the course of hearing, MBL stated that they had place single share order quantity for price discovery. Further, from the submission of MBL, I note that MBL had failed to explain and demonstrate through their order placement behavior that after single share order placement (price discovery order), MBL had placed separate buy or sell order for large number / quantity of shares. Further, MBL also failed to demonstrate through their order placement behavior that single shares order was from large split order. 23.7. MBL contented that by placing 1 share buy order, MBL was trying to do the price discovery. In this regard, I note that on December 23, 2011 MBL vide sell order no. 2011122300049878 had place a sell order of 1,000 shares at 09:15:41 at Rs. 16.45 and within 6 second of placing a sell order, MBL vide buy order no. 2011122300052139 had place buy order for 1 share order manually from same terminal at 09:15:47 at Rs. 16.45 and trade got executed at 09:15:47 for 1 share at Rs. 16.45 with LTP difference of Rs. 0.15/-. Thus, in my view, this behavior of MBL of single shares self-trade cannot be considered as a permissible mode of price discove....
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....he volume creation is negligible but were in fact motivated by the manipulative intention of creation of false price ascension. Thus, preponderance of probability is that these trades are intentional self-trades. Therefore, I conclude that the impugned self-trades by MBL are intentional and manipulative self-trades. 26. MBL contented that in order to check the price of the scrip, MBL placed a single share buy order and these insignificant quantum of trading could not impact either the price or volume of the scrip. In this regard, I note that single share buy order placed by MBL got matched with the already available large sell order of MBL at a price higher than the last traded price thereby establishing the higher LTP. Further, such order placement pattern of MBL were observed in large number of MBL self-trades and the same were repetitive in nature. I note that due to such trading pattern, MBL had positive LTP contribution of Rs. 289.35 through 5,041 self-trades. Further, I also note the observation of Hon'ble Securities Appellate Tribunal (SAT) in order dated February 25, 2020 in the matter of Mrs. Kalpana Dharmesh Chheda and others Vs. SEBI that ".... when the appellants were ....
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....in a manner which led to a misleading appearance of trading in the scrip and manipulated the price of the scrip without any intention of change of ownership of the securities. 28. In view of the findings mentioned at paragraph 23, 24, 25 and 26 above and modus operandi adopted by MBL, I am of the view that alleged violations of 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 the PFUTP Regulations against MBL stand established. ISSUE No. 4 - If issue no.1, 2 & 3 is found in affirmative, then whether MBL by acting as broker and counterparty broker for self-trades in its own account on NSE, has failed to exercise due skill and care, thereby violated the 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? 29. It is alleged in the SCN that MBL had failed to exercise due skill, care and diligence while acting as broker and counter party broker for self-trades in its proprietary account, thereby had violated the provisions of Clau....