Regulation 4 - Prohibition of manipulative, fraudulent and unfair trade practices - Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a 4 [ manipulative, ] fraudulent or an unfair trade practice in securities 5 [ markets ] . 31 [ Explanation. For the removal of doubts, it is clarified that- (i) any act of diversion, misutilisation or siphoning off of assets or earnings of a company whose securities are listed or any concealment of such act or any device, scheme or artifice to manipulate the books of accounts or financial statement of such a company that would directly or indirectly manipulate the price of securities of that company, or (ii) transactions through mule accounts for indulging in manipulative, fraudulent and unfair trade practice shall be and shall always be deemed to have been included in sub-regulation (1). ] (2) Dealing in securities shall be deemed to be a 6 [ manipulative, ] fraudulent or an unfair trade practice if it involves 7 [ any of the following ] :- (a) 8 [ knowingly ] indulging in an act which creates false or misleading appearance of trading in the securities market; (b) dealing in a security not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the price of such security for wrongful gain or avoidance of loss; 9 [ (c) inducing any person to subscribe to an issue of the securities for fraudulently securing the minimum subscription to such issue of securities, by advancing or agreeing to advance any money to any other person or through any other means; ] 10 [ (d) inducing any person for dealing in any securities for artificially inflating, depressing, maintaining or causing fluctuation in the price of securities through any means including by paying, offering or agreeing to pay or offer any money or money's worth, directly or indirectly, to any person; ] (e) any act or omission amounting to manipulation of the price of a security 11 [ including, influencing or manipulating the reference price or bench mark price of any securities ] ; (f) 12 [ knowingly ] publishing or causing to publish or reporting or causing to report by a person dealing in securities any information 13 [ relating to securities, including financial results, financial statements, mergers and acquisitions, regulatory approvals, ] which is not true or which he does not believe to be true prior to or in the course of dealing in securities; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security; (h) 14 [ selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities whether in physical or dematerialized form: Provided that if:- (i) the person selling, dealing in or pledging stolen, counterfeit or fraudulently issued securities was a holder in due course; or (ii) the stolen, counterfeit or fraudulently issued securities were previously traded on the market through a bonafide transaction, (iii) such selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities shall not be considered as a manipulative, fraudulent, or unfair trade practice; ] (i) 15 [ **** ] (j) 16 [ **** ] 30 [ (k) disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading in a reckless or careless manner and which is designed to, or likely to influence the decision of investors dealing in securities; ] (l) 18 [ **** ] (m) 19 [ a market participant entering into transactions on behalf of client without the knowledge of or instructions from client or misutilizing or diverting the funds or securities of the client held in fiduciary capacity ] (n) circular transactions in respect of a security entered into between 20 [ persons including intermediaries to artificially ] provide a false appearance of trading in such security or to inflate, depress or cause fluctuations in the price of such security; (o) 21 [ fraudulent inducement of any person by a market participant to deal in securities with the objective of enhancing his brokerage or commission or income; ] (p) an intermediary predating or otherwise falsifying records 22 [ including contract notes, client instructions, balance of securities statement, client account statements ] . (q) 23 [ any order in securities placed by a person, while directly or indirectly in possession of information that is not publically available, regarding a substantial impending transaction in that securities, its underlying securities or its derivative; ] (r) 24 [ knowingly ] planting false or misleading news 25 [ or information ] which may induce sale or purchase of securities. 26 [ (s) mis-selling of securities or services relating to securities market; Explanation- For the purpose of this clause, mis-selling means sale of securities or services relating to securities market by any person, directly or indirectly, by- (i) knowingly making a false or misleading statement, or (ii) knowingly concealing or omitting material facts, or (iii) knowingly concealing the associated risk, or (iv) not taking reasonable care to ensure suitability of the securities or service to the buyer. ] 2 [(t) illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person.] 3 [ 27 [ Expiation-1 ] . For the purposes of this sub-regulation, for the removal of doubts, it is clarified that the acts or omissions listed in this sub-regulation are not exhaustive and that an act or omission is prohibited if it falls within the purview of regulation 3, notwithstanding that it is not included in this sub-regulation or is described as being committed only by a certain category of persons in this sub-regulation.] 28 [ Explanation-2 Market Participant shall include any person or entity registered under Section 12 of the Act and its employees and agents. ] ************** NOTES:- 1 Inserted by the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) (Amendment) Regulations, 2012 w.e.f. December 11, 2012. 2 Inserted by the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) (Amendment) Regulations, 2013 w.e.f. September 6, 2013. 3 Inserted by the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) (Amendment) Regulations, 2013 w.e.f. September 6, 2013. 4. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 5. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 6. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 7. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, fraud and may include all or any of the following, namely 8. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 9. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue; 10. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money s worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security; 11. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 12. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 13. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 14. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (h) selling, dealing or pledging of stolen or counterfeit security whether in physical or dematerialized form; 15. Omitted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (i) an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself; 16. Omitted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (j) an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security; 17. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; 18. Omitted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (l) an intermediary reporting trading transactions to his clients entered into on their behalf in an inflated manner in order to increase his commission and brokerage; 19. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, an intermediary not disclosing to his client transactions entered into on his behalf including taking an option position; 20. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, intermediaries in order to increase commission to 21. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, encouraging the clients by an intermediary to deal in securities solely with the object of enhancing his brokerage or commission; 22. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, such as contract notes 23. Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, (q) an intermediary buying or selling securities in advance of a substantial client order or whereby a futures or option position is taken about an impending transaction in the same or related futures or options contract. 24. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 25. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 26 . Substituted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, 1 [ (s) mis-selling of units of a mutual fund scheme; Explanation.- For the purpose of this clause, mis-selling means sale of units of a mutual fund scheme by any person, directly or indirectly, by─ (i) making a false or misleading statement, or (ii) concealing or omitting material facts of the scheme, or (iii)concealing the associated risk factors of the scheme, or (iv) not taking reasonable care to ensure suitability of the scheme to the buyer.] 27. Re-Numbered vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 before it was read as, Explanation 28. Inserted vide Notification No. SEBI/LAD-NRO/GN/2018/56 dated 31-12-2018 w.e.f. 01-02-2019 29. Inserted vide Notification No. SEBI/LAD-NRO/GN/2020/36 dated 19-10-2020 30. Substituted vide Notification No. SEBI/LAD-NRO/GN/2022/71 dated 25-01-2022 before it was read as, 17 [ (k) disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities; ] 31. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/187 dated 27-06-2024 before it was read as, 29 [ Explanation. For the removal of doubts, it is clarified that any act of diversion, misutilisation or siphoning off of assets or earnings of a company whose securities are listed or any concealment of such act or any device, scheme or artifice to manipulate the books of accounts or financial statement of such a company that would directly or indirectly manipulate the price of securities of that company shall be and shall always be deemed to have been considered as manipulative, fraudulent and an unfair trade practice in the securities market. ]