Securities Appellate Tribunal
V.G.Capital Market Pvt. Ltd. vs Sebi on 1 December, 2009
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 135 of 2009
Date of Decision : 1.12.2009
V.G. Capital Market Pvt. Ltd. ...Appellant
'A' Block, 1st floor, Mercantile Buildings,
9, Lal Bazar Street,
Kolkata.
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra Kurla Complex,
Mumbai. ...Respondent
Mr. Vinod Kumar Goyal, Authorised Representative for the Appellant.
Mr. R.S. Loona, Advocate with Mr. Abhishek Borgikar and Mr. Ankur Loona,
Advocates for the Respondent.
Coram : Justice N.K. Sodhi, Presiding Officer
Samar Ray, Member
Per : Justice N.K. Sodhi, Presiding Officer (Oral)
V.G. Capital Market Pvt. Ltd. is the appellant before us. It is a stock broker
registered with the Securities and Exchange Board of India and is a member of the
National Stock Exchange of India Ltd. It is alleged that the appellant executed
manipulative trades in its proprietory account as well as on behalf of its clients while
trading in the shares of Hi-Tech Gears Limited and Munjal Showa Limited
(hereinafter referred to as Hi-Tech and Munjal respectively). The trades were
executed in the year 2004. Since the investigations revealed that the trades were
manipulative, the appellant was served with a show cause notice dated November 17,
2006 alleging violation of the provisions of the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003 and the Securities and Exchange Board of India (Stock
Brokers and Sub-brokers) Regulations, 1992. The show cause notice contained the
details of all the trades executed by the appellant both in its proprietory account as
well as on behalf of its clients. The trades have been referred to in different charts
2
detailed in the show cause notice. The learned representative appearing on behalf of
the appellant has not disputed any of these trades. The two charts, among others,
show manipulative trades executed by the appellant both in its proprietory account as
well as on behalf of its clients as referred to in the impugned order and the same are
reproduced hereunder for facility of reference:
Table IV
Traded
Date of trading Buy client Sell client Quantity LTP%
price
March 12, 2004 Broker's Rash Raj 143 1500 -1.72
proprietary Plastics Pvt
account Ltd (RPL)
March 15, 2004 RPL Broker's 140.10 2550 -0.78
proprietary
account
March 17, 2004 RPL Broker's 138 1249 -1.64
proprietary
account
March 23, 2004 Broker's RPL 121.50 2500 0.79
proprietary
account
March 24, 2004 RPL Broker's 125.5 1200 0.36
proprietary 126 1300 0.40
account
March 26, 2004 Broker's RPL 121.4 2000 -2.88
proprietary 121.6 2000 0.16
account
April 6, 2004 RPL Broker's 140 2500 -7.28
proprietary
account
April 8, 2004 RPL Broker's 139 1500 -7.02
proprietary
account
Table V
Buying No. of Selling Trd
Date Remarks LTP %
client shares client price
March Rash Raj 1185 Bhagwan 165.2 -0.27
03, 2004 Plastics Lal Goyal
Pvt. Ltd.
March Broker's 200 GK 170 4.94
09, 2004 proprietary Singhania
account & Co.
March Broker's 500 Rash Raj The trade 161.15 -2.33
09,2004 proprietary Plastics reversed
account Pvt. Ltd. subsequently
March Rash Raj 500 Broker's 149 -6.88
10, 2004 Plastics proprietary
Pvt. Ltd. account
March Rash Raj 200 Vinod 157.15 0.10
11, 2004 Plastics Kumar
Pvt. Ltd. Goyal
3
March Broker's 5,500 Sushila 143.4 -8.08
12, 2004 proprietary Devi
account Goyal
March Broker's 1,500 Rash Raj The trade 143 -1.72
12, 2004 proprietary Plastics reversed
account Pvt. Ltd. subsequently
March Rash Raj 2300 Broker's 140.1 -0.78
15, 2004 Plastics proprietary
Pvt. Ltd. account
March Bhagwan 2,500 Broker's 141.2 -2.62
15, 2004 Lal Goyal proprietary
account
March Broker's 1249 Sushila
16, 2004 proprietary Devi
account Goyal
March Bhagwan 1,500 Broker's
15, 2004 Lal goyal proprietary
account
March Rash Raj 1249 Broker's 138 -1.64
17, 2004 Plastics proprietary
Pvt. Ltd. account
March Broker's 2,500 Rash Raj The 121.5 0.79 & -
23, 2004 proprietary Plastics previous 6.54
account Pvt. Ltd. trades being
reversed
March Rash Raj 2500 Broker's Trade being 125.5 & 0.36 &
24. 2004 Plastics proprietary reversed 126 0.40
Pvt. Ltd. account again
March Broker's 4,000 Rash Raj Trade 121.4 & -2.88 &
26, 2004 proprietary Plastics reversed 121.6 0.16
account Pvt. Ltd. again
April 06, Rash Raj 2,500 Broker's Trade 140 -7.28
2004 Plastics proprietary reversed
Pvt. Ltd. account again
April 08, Rash Raj 1,500 Broker's 139 -7.02
2004 Plastics proprietary
Pvt. Ltd. account
The trades referred to in the aforesaid charts were executed between March 3, 2004
and April 8, 2004 and are in regard to the shares of Hi-Tech. A mere look at the
aforesaid charts would make it clear that the appellant purchased 1500 shares from
Rash Raj Plastics Pvt. Ltd. on March 12, 2004 and sold 2550 shares to the same
party on March 15, 2004. Again, on March 17, 2004 the appellant sold another 1249
shares to the same party and purchased 2500 shares from that party on March 23,
2004. These are reverse trades which are not possible on the exchange unless they
are manipulated. The trading system on the exchanges is based on the principle of
anonymity. The buyer does not know who the seller is and seller cannot know who
the buyer is. In other words, the buyer should buy the shares without being
concerned as to who the seller is and similarly the seller should sell the shares in the
4
market without being concerned about the buyer and it is the system which
determines the buyer and the seller by matching the buy and sell orders. On a screen
based trading, the best buy order will match the best sell order subject to price time
priority. The buyer and the seller cannot keep matching their trades and if they do,
they are obviously manipulating the system which is the case before us. Reverse
trades are a clear instance of manipulative trading. It is true that before any buy and
sell order can result in a trade they must match but this matching must take place
through the system without the intervention of any human element. Knowing how
the system works, reverse trades are not possible unless the trades are manipulated
particularly when the scrip is liquid. The learned representative of the appellant
informs us that the scrip of Hi-Tech is a liquid scrip. This being so, reverse trades
could be executed only through manipulation and not otherwise. We have referred to
only a few of these trades but the charts indicate the large extent to which they were
executed. Such trades are possible when buy and sell orders are put into the system
at the same point of time for the same or almost similar quantity at almost the same
price. The trades that were executed by the appellant on behalf of its clients were
cross trades in which it was the broker for both sides. In such cases the broker has to
be more cautious and careful to ensure that the trades do not get synchronized
through manipulative means. We are, therefore, satisfied that manipulative trades
were executed by the appellant and that it violated the provisions of the aforesaid
regulations. In this view of the matter, no fault can be found with the impugned order
passed by the adjudicating officer imposing a monetary penalty of Rs. 50,000/-.
In the result, the appeal fails and the same stands dismissed with no order as
to costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
Samar Ray
Member
1.12.2009 Prepared and compared by:
msb/- 5