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TMI Blog2015 (4) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... ference in AIPL’s buy and sell volumes, on two days, when self trades were executed and hence not in nature of jobbing. In view of above, AIPL have been held violative of regulation 3(a), 4(1) and 4(2)(a), (b), (e) and (g) of PFUTP Regulations and ABPL held violative in addition to regulation 7 read with Clauses A(1), A(3), A(4) and A(5) of Code of Conduct of Stock-Brokers, as specified in Schedule II of Stock-Broker Regulations. To sum up, facts on record reveal that AIPL which subsequently merged with ABPL, had on November 30, 2009 and December 1, 2009 executed 4 self trades, wherein ABPL acted as broker as well as counter party broker. Moreover, it is found that AIPL had on December 1, 2009 sold shares at lower price and bought shares at higher price, which is contrary to normal jobbing, wherein, normally shares are bought at lower price and sold at a higher price. Although, self trades in question were executed only on two days and there is time gap between buy order and sell order and number of shares may be only 7.45% of total in buy and 10.20% of total sale of SGWL scrip on these two days yet in facts of present case, modus operandi adopted by ABPL/AIPL in executing se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he holding company of ABPL; although AIPL was also acting as broker for proprietary trading account of Angel Group,-which comprised ABPL, AIPL, Angel Capital and Debt Market Limited and Angel Commodities Broking Private Limited. AIPL - a client of ABPL - was found to be executing self trades in scrip of SGWL during IP and executed 1 (one) self trade on November 30, 2009 and 3 (three) self trades on December 1, 2009 and traded 9,866 shares in these 4 self trades, where broker and counter party brokers for self-trades was ABPL. It is alleged that ABPL consciously executed self-trades for its client AIPL and hence ABPL connived with AIPL for these self trades. 4. A Show Cause Notice (SCN) was issued by Ld. AO to Appellant vide letter dated July 15, 2013 and Appellant made following relevant submissions before Ld. AO: Basic nature of AIPL s activity was jobbing / arbitrage, which is undertaken through a network of around 70 dealers and all these 70 dealers place orders through single client code viz. M888, while using 156 terminals. Regarding alleged self trades by AIPL, it has been submitted by AIPL that multiple dealers traded based on their individual outlook of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiduciary capacity in pool account to met settlement obligations; hence this does not establish any connect in trading of the scrip. It has been submitted that ABPL or its associates are not, directly or indirectly, connected with SGWL. AIPL carried out jobbing transactions as in its normal course of business, while ABPL, as a stock broker facilitated in executing the trades on exchange platform. The alleged trades were executed at real prevailing market price and do not create misleading appearance of trading which tampers / manipulates price discovery mechanism at stock exchange. No undue gain or unfair advantage accrued to AIPL, nor, any resultant artificial volume was created as a result of trades covered by Appellant. Appellant was issued supplementary SCN on November 13, 2013, whereby detailed analysis or order pattern of self trades executed by Appellant on December 1, 2009 was provided, while dealing in scrip of SGWL. 5. Allegations, issues and findings against Appellant are: ABPL assisted AIPL in placing fictitious trades / self trades entered by AIPL, by acting as broker and counter party broker and thus failed to carry out its business with due skill, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Regarding alleged remaining 2 self trades executed by AIPL, it is stated that on December 1, 2009 at 15:06:50, AIPL placed sell order for 500 shares at ₹ 41.30, which was updated to 5000 at 15:06:52, without change of price, and subsequently order up further updated by lowering price to ₹ 41.20 at 15:07:21. After lowering of price 3 trades for 650 shares got executed from 15:07:26 to 15:08:58, leaving pending quantity of 4350 shares of sell order. Further AIPL placed another sell order for 5000 shares at ₹ 41.30 at 15:06:53. Despite pending sell order for 4350 shares, price was revised upward to ₹ 41.30 at 15:12:15. During 15:06:51 to 15:19:44; average trade price was ₹ 41.02 with no trading in SGWL scrip from 15:19:45 to 15:19:59. Subsequently at 15:19:59, AIPL placed buy order for 45,000 shares at price ₹ 41.35. Previous sell orders of AIPL were pending for execution at lower price, with volume subsequently lower than this buy order; AIPL placed buy order of large volume and price higher than the then prevailing market price - last trade price before AIPL placed this large buy order was ₹ 41.20 at 15:19:44. It is not logical to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent to hitting upper circuit limit at 15:06:21, till end of market hour at 15:45:00, AIPL was on buy side for 57,642 shares i.e. 50% of market volume. Also out of 3.69 lac shares traded on December 1, 2009, AIPL was on buy side for 95,435 shares i.e. more than 25% of market volume. Further when AIPL entered orders for 45,000 shares on December 1, 2009 at 15:19:59, they had already bought 43,935 shares and sold 18,591 shares by that time on December 1, 2009; but further entered large order for 45,000 shares at circuit limit at end of market hours; which is contrary to jobbing activity - for which no net position either on buy or sell of any scrip, is pre-requisite Scrip of SGWL had fallen after trades at upper circuit limit - between 15:06:21 to 15:06:41 - to ₹ 41.02, but returned to upper circuit limit due to buy order of AIPL for 45,000 shares at ₹ 41.35 at 15:19:59. Thus trades of AIPL, executed by ABPL, established and maintained circuit limit price by entering orders at higher prices, even though price of scrip had fallen. Regarding claim of AIPL that its dealer was acting independently; from order entry pattern, it is observed that they were in concert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. AO:- How could an order be cancelled within 2 seconds of its placement, i.e. whether it is physically possible to punch in a cancellation order within 2 seconds of its being placed, since time taken to physically place or cancel an order is definitely much more than 2 seconds, while not taking account the time taken by dealer in making up his mind - based on sensing adverse price movement, etc. Cancellation of order within 2 seconds of its being placed gives rise to conclusion that placing of order for sale and its cancellation was decided at the same time and sell order was placed from one terminal, while cancellation was put in place from second terminal and placing of order for sale was followed immediately - within 2 seconds - by its cancellation. This appears more logical in the context of what really happened, since sale order at 10:23:39 for 1000 shares of SGWL was for self trade of pending buy quantity of 323 shares of order placed at 10:09:34 and dealer knew very well that when he places order for sale of same scrip, at same price as in buy order, the trade for 323 shares of SGWL will take place immediately and he has to cancel the sell order immediately i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocations and self trades were coincidence and not intention, but Tribunal held that appellant may adopt any business model, but has to ensure that whatever business model is adopted, is in conformity with regulatory framework and Appellant was held guilty of violative of PFUTP Regulations. 9. Next case cited by Appellant is Smt. Krupa Sanjay Soni Anr. vs. SEBI (Appeal No. 32 of 2013 decided on 09.01.2014), wherein Appellants acted as a group and were responsible for increase in price of scrip SGTL by manipulating in market, through self and synchronized trade. Appellant were held vioaltive of PFUTP Regulations due to self-trades resulting in manipulation of securities markets. 10. Next case cited by Arcadia Share and Stock Brokers Pvt. Ltd. decided by AO, SEBI vide Order no. IVD-ID5/CT-ASSBPL/AO/DRK-AKS/EAD3-414/80-2013 dated November 21, 2013, where a client of Arcadia executed self trade through Arcadia but no connection could be established between Arcadia and client or that Arcadia has knowledge of client s self-trades or was an accomplice and hence Arcadia (broker) was not penalized. 11. Appellant have also submitted Financial Industry Regulatory Authority, Inc. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /IVD/ID-06/JAN/2013 decided on January 30, 2013 deal with Angel Broking Limited (ABL), wherein ABL was found to have violative of PFUTP Regulations and Stock-Brokers Regulations, due its aid and abetment of its client in creation of artificial volumes in scrip of Sun Infoways Limited. 16. From what has been stated above, it can be conclusively concluded that Appellant executed 4 self trades on November 30, 2009 and December 1, 2009 for 9866 shares in scrip of SGWL, which constituted 7.45% of total buy and 10.20% of total sale of SGWL scrip on these two days, and these self-trades have not been denied. 17. Appellant has tried to explain these self trades, as arising due to jobbing/arbitrage nature of their business, where more than one dealer deals with the scrip and place buy or sell orders in same scrip, based on their perception of market and hence these orders arising out of different terminals sometimes match and this has not been done intentionally or they have made any profit. 18. Ld. AO has on other hand has demolished all reasoning / explanations of these self trades, in a systematic, analytic and logical manner and proved beyond reasonable doubt that these self-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership, created false volumes and manipulated price of SGWL scrip and thus sent wrong signals to gullible investors about trading in scrip - and hence considering that self trades have serious consequences and is serious violation on 4 occasions on November 30, 2009 and December 1, 2009 and since ABPL, was previously also held to violative of Stock-Brokers Regulations and PFUTP violations; exemplary penalty needs to be imposed on Appellant. 23. To sum up, facts on record reveal that AIPL which subsequently merged with ABPL, had on November 30, 2009 and December 1, 2009 executed 4 self trades, wherein ABPL acted as broker as well as counter party broker. Moreover, it is found that AIPL had on December 1, 2009 sold shares at lower price and bought shares at higher price, which is contrary to normal jobbing, wherein, normally shares are bought at lower price and sold at a higher price. Although, self trades in question were executed only on two days and there is time gap between buy order and sell order and number of shares may be only 7.45% of total in buy and 10.20% of total sale of SGWL scrip on these two days yet in facts of present case, modus operandi adopted by ABPL/AIPL i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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