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TMI Blog2019 (3) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... l and, therefore, not covered by the PFUTP Regulations, 2003 or the self-trades were manipulative or intentional to defraud the market on the basis of additional evidence which could be physical or circumstantial to show the intention or manipulation. We are also of the opinion that the adoption of the yardstick of around 3% of the total market self-trades as substantial creating misleading appearance of trading, after taking into consideration the judgment of SAT in Smt. Krupa Soni’s [2015 (7) TMI 257 - SECURITIES APPELLATE TRIBUNAL MUMBAI] case is totally misplaced as it does not indicate that a total market self-trades of less than 3% would be considered as negligible. Thus, in our view, the AO is required to reconsider and arrive at a finding as to what percentage of the total market selftrades would be considered as negligible or minuscule to come under the category of accidental or unintentional self-trades. Admittedly, the appellant was trading through algorithmic software which was dully approved by BSE and NSE. Admittedly, the software is designed to anticipate microscopic changes in the market and to respond to those changes in the matter of seconds. Orders of sale and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being conducted by SEBI on the price movement of the scrip of SIL and for possible violations of securities laws. 2. Based on this investigation, a show cause notice dated May 12, 2015 was served to show as to why an inquiry should not be held and penalty be not imposed for violation of Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as, "PFUTP Regulations"). The appellant was given an opportunity of hearing, and after considering the matter, a final order was passed by the Adjudicating Officer (hereinafter referred to as, "AO") imposing a penalty of ₹ 1.10 crore under Sections 15HA and 15HB of the Securities and Exchange Board of India Act, 1992, (hereinafter referred to as, "SEBI Act") for violation of PFUTP Regulations and Code of Conduct for stockbrokers. 3. The AO found that the appellant on March 11, 2011 while carrying out algo trading in the scrip of SIL had conducted large selftrades with an intent to create misleading appearance of trading without intention to change the ownership of such securities. The AO held that such m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant had self-traded around 4% of the total market volume in the SIL scrips was factually incorrect. It was urged that the total percentage of self-trades was only 1.95% of the total market. 7. It was also urged by the learned counsel for the appellant that the AO as well as the Whole Time Member (hereinafter referred to as, 'WTM') pursuant to the policy in respect of self-trades and pursuant to the decision of this Tribunal in Smt. Krupa Sanjay Soni's case had adopted a yardstick that self-trades of around 3% or more would be treated as substantial creating misleading appearance of trading. It was contended by the learned counsel for the appellant that the AO as well as the WTM were passing several orders holding that the volume of self-trading being less than 3% was a negligible percentage and that it was difficult to arrive at a conclusion that these self-trades were executed with an intention to create misleading appearance of trading in the securities market and thus, difficult to hold them liable for any failure of Code of Conduct of Stockbrokers Regulations. Such orders were passed by the AO in the case of the appellant itself being Adjudication Order No. RA/JP/172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any additional material, evidence or circumstances are available to indicate manipulation of the price or volume of the scrip or creation of false or misleading appearance of trading in securities market resulting from such self-trades. 10. In the case of Ketan Parekh vs. SEBI in Appeal No. 2 of 2004 decided on July 14, 2006, this Tribunal held as under :- "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 because direct evidence in such cases may not be available. The nature of the transaction executed, the frequency with which such transactions are undertaken, the value of the transactions, whether they involve circular trading and whether there is real change of beneficial ownership, the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn." 11. Various decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the entity may be exonerated by the quasi-judicial authority. Further, while assessing the manipulative intent, the volume transacted may also be considered in addition to the other factors. b. Further, the entities who have been charged for selftrades have an option to apply for settlement proceedings and the cases where there is mere occurrence of self-trades without any other evidence to indicate manipulation may be settled at the minimum amount prescribed as Schedule II, Chapter I, pt. 2 of the Settlement Regulations. In order to remove difficulties arising from various clauses of Settlement Regulations such as Reg. 5(1)(c) exemption is granted from the restriction placed under Regulation 5(1)(c) so that cases arising in multiple scrips due to self-trades by the same entity can be settled. The settlement orders arising out of self-trade matters would not considered in the number of orders under Reg. 5(1)(c). The individual cases would accordingly be taken through HPAC and panel of members as per the Settlement Regulations. 4. The said policy may be circulated to all the departments for necessary action." 13. The circular indicates that in order to find someone guilt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -trades to the total market volume. 16. As per the actual calculation the total market self-trades comes to 1.95%. This fact has been fairly conceded by the learned senior counsel for the respondent. Whether 1.95% is substantial or not has to be reconsidered by the AO in the light of the circular of 2017 in order to find out whether the self-trades were accidental or unintentional and, therefore, not covered by the PFUTP Regulations, 2003 or the self-trades were manipulative or intentional to defraud the market on the basis of additional evidence which could be physical or circumstantial to show the intention or manipulation. 17. We are also of the opinion that the adoption of the yardstick of around 3% of the total market self-trades as substantial creating misleading appearance of trading, after taking into consideration the judgment of SAT in Smt. Krupa Soni's case is totally misplaced. We find that the decision in Smt. Krupa Soni case does not indicate that a total market self-trades of less than 3% would be considered as negligible. Thus, in our view, the AO is required to reconsider and arrive at a finding as to what percentage of the total market selftrades would be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraction of seconds a similar order of the same quantity could be booked for sale. Consequently, such purchase and sale could happen automatically which may result in self-trades. Whether such self-trades generated automatically could lead to violation of PFUTP Regulations is a point which is required to be considered by the AO especially in the light of the policy declared by SEBI in its circular of 2017, namely, the intention/the manipulative intention. Further, whether such intention or manipulative intention generated automatically through algo trading can be fastened upon the appellant when there is no human intervention is also required to be given some consideration. The fact remains that if the appellant was executing an order through algo trading, he should have placed some mechanism in the algo software in order to ensure that such trades do not result in self-trades. All these aspects are required to be considered which we find the same to be lacking in the instant case. 20. Since, admittedly, the volume of the transaction in self-trades have been incorrectly calculated, the impugned order cannot be sustained and the matter is required to be remitted again to the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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