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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 ..... NSE. On that day, the price of the scrips rose by almost 47% reaching Rs. 117.70 on BSE and Rs. 117.35 on NSE. A total of 3,43,12,272 shares of SIL was traded on BSE and 4,04,07,612 shares were traded on NSE. This 47% increase in the price of the scrips led to an investigation 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two counts, namely, that the impugned order was based on erroneous facts and that there was a violation of the principles of natural justice as adequate opportunity was not given to inspect the documents. 6. The learned counsel contended that the finding given by AO that 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 crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using different terminals through the same broker, may get matched accidentally without any manipulative intention. As such, mere occurrence of self-trades may be accidental but still would attract the provisions of Regulation 4(a) and (g) of the PFUTP Regulations, 2003 if 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 facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r into self-trade is evident from the material on record. If the manipulation or intent can be established the same may be proceeded with as approved. However, if no intention or manipulation is evident from the case and the only charge is mere occurrence of self-trades, then 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 3,43,12,2723 2. NSE 6,28,4612 4,04,07,6124 3. Total (1+2) 14,60,138 7,47,19884 The total percentage of self-trades to the total market would be the total quantity of self-trades divided by the total market volume i.e. 14,60,138/7,47,19,884*100 = 1.95% of self-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detect the most minute changes in stock prices and to respond accordingly and, therefore, it is quite possible that when certain orders are automatically generated without any human intervention for purchase of shares on a minute change in the stock prices, simultaneously in a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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