Securities Appellate Tribunal
Sebi vs Agbros Securities Pvt. Ltd. on 29 March, 2007
ORDER
V.K. Chopra, Member 1.0 BACKGROUND 1.1 Ranbaxy Laboratories Ltd. (hereinafter referred to as "Ranbaxy") was incorporated in June 1961 and engaged mainly in the business of manufacturing and marketing of pharma products. The price of the scrip of Ranbaxy had moved up significantly from Rs. 270/- in January 1999 to about Rs. 1200/- in October 1999 accompanied with significant increase in volumes. Considering the above major spurt in price and volumes traded in the Exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE), Securities and Exchange Board of India (hereinafter referred to as "the Board") had conducted investigation into the dealings of many brokers in the shares of Ranbaxy including M/s Agbros Securities Pvt. Ltd., a broker (hereinafter referred to as "the Broker") CSE with SEBI Registration No. INB031017534.
1.2 The Board after considering the Investigation Report, appointed an Enquiry Officer vide Order dated November 27, 2002 to enquire into the violations of the provisions of Regulation 4(a), (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to as "PFUTP Regulations") Regulation 7 read with Clause A(3) and (4) of the Code of Conduct for Stock Brokers as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations") and Rules, Regulations and Bye-laws of Stock Exchanges.
1.3 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Regulation 6 of the Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as "Enquiry Regulations") submitted a report dated November 14, 2003 wherein he observed that the Broker violated the provisions of SEBI circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999; Regulation 7 read with Clause A(3) and (4) of Code of Conduct as specified in Schedule II of Stock Brokers Regulations and Regulation 4(b) & (c) of PFUTP Regulations. He recommended suspension of registration of the Broker for a period of six months.
2.0 SHOW CAUSE NOTICE 2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated December 05, 2003 was issued to the Broker, enclosing therewith a copy of the said Enquiry Report and advising him to show cause as to why the action as recommended by the Enquiry Officer or any other penalty deemed appropriate should not be imposed on them. The Broker submitted its reply to the show cause notice vide letter dated January 01, 2004.
3.0 REPLY OF THE BROKER TO THE SHOW CAUSE NOTICE The findings of the Enquiry Officer in Point No. 5.2 that we had executed synchronized / matching trades in the shares of Ranbaxy Laboratories Ltd. with the Counter Party is wrong and denied. The mere fact that in all the cases order quantity and price are the same with the Counter Party quantity and price cannot and should not form the basis of concluding that these are synchronized / matching trades. Because if this is taken as the criteria then we are sure many of the trades executed at Stock Exchanges would be termed as synchronized / matching trades which cannot be the case.
In reply to the finding in Point No. 5.3 we state that there was no prior understanding with the Counter Party in the trades executed by us.
The contention of the Enquiry Officer that 10,40,000 shares were still matched by the Member with other counter party members is wrong and denied even the trade of these shares were executed by us in the normal course of business at the prevailing market rate on 'C' Star screen based trading system of Calcutta Stock Exchange these were genuine trades and it may be please noted that the 'C' star screen based trading system while making purchase or sale sauda we do not know the identity of the Counter Party broker with whom our purchase or sale order gets matched. There is no mechanism by which we can come to know who the Counter Party broker is even if we want to know about it.
As also confirmed by the Enquiry Officer in Point No. 5.5, it will be observed that the % of the alleged matching transaction to our total transaction in the shares of Ranbaxy Laboratories Ltd. during the period under consideration is quite less at 10.36% The finding of the Enquiry Officer in Point No. 5.7 that our trades were not executed through the normal price and order mechanism of the Exchange is wrong and denied as already explained in above in our Point No. 1.
As all our trades were genuine and in the normal course so there was no Violation of Regulation 7 read with Clause A(3) and (4) of Code of Conduct as specified in Schedule II of SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 as mentioned in Point No. 5.8. Similarly there was no violation of the Provisions of Regulation 4(b) and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995.
4.0 HEARING 4.1 In the said reply to show cause notice, the broker requested for personal hearing. The broker was accordingly advised to attend the personal hearing before me at Head Office SEBI at Mumbai on October 13, 2006 at 2.45p.m. Shri Narendra Balasia, Director, M/s Agbros Securities Pvt. Ltd and Shri. Prakash Shah, Authorised Representative of M/s Agbros Securities Pvt. Ltd attended the hearing and also sought a weeks time to file their written submission which was granted. Accordingly written submission dated October 27, 2006 was filed on October 31, 2006. I have considered the said written submission while dealing with the issues involved in the matter.
5.0 CONSIDERATION OF ISSUES & FINDINGS 5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the broker and written submission.
5.2 The scrip of Ranbaxy Laboratories Ltd. (herein after referred as Ranbaxy) traded around the price range of Rs. 270/- at the beginning of January 1999. The price of the scrip moved up to Rs. 320/- by the end of January 1999. Subsequently, price continued to move upward during February - March 1999 and reached to Rs. 650/- by end of March 1999. Further, the price of the scrip moved to Rs. 700/ during May 1999 and came down to Rs. 600/- during June 1999. The price subsequently moved upwards and touched Rs. 800/- during July 1999 and Rs. 1000/- during August 1999. The scrip was being traded in the range of Rs. 900/- to Rs. 1100/- during August - September 1999 and increased to Rs. 1200/- during October 1999. Effectively the price of the scrip moved up from Rs. 267 on 01.01.99 to a high of Rs. 1215/- on 13.10.99. Later on the price started falling gradually and closed at Rs. 869 on 29.10.99 at BSE. The price of the scrip of Ranbaxy had moved significantly during the period from Rs. 270/-in January 1999 to about Rs. 1200/- in October 1999. The price rise in the scrip was accompanied with significant increase in volumes.
5.3 I find that the Enquiry Officer has arrived at a conclusion in his enquiry report that the broker had carried out 67 instances of synchronization of trades with a view to create misleading appearance of trading which tampers with price discovery mechanism of stock exchange.
5.4 I find that the charges levelled against the Broker are on the basis of the aforesaid synchronized trades. The synchronized trade is a kind of transaction where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. I find that synchronized deal per se is not illegal. On the other hand, the synchronized deal with fraudulent or deceptive intention to create misleading appearance of trading and to manipulate the price and volume of the scrip price to tamper the price discovery mechanism of stock exchange with a view to get undue gain out of it, is no doubt a serious matter.
5.5 Hence the issue to be decided in this case is whether the broker has carried out any such synchronized trades and to take a decision as to whether the penalty recommended by the enquiry officer against the broker is proper or not. In order to decide the said issue, I felt it necessary to analyze the details of synchronized trades executed by the broker which is hereunder:
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Buy Mem Trade Buy Order Buy Buy Sell Mem Sell Ord Sell Sale Time Di Price
Name date time order order Name er time order order fference Diffe
Qty rate Qty rate rence
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Agbros 3/23/1999 15:07:53 10000 675.00 SANJAY 15:07:53 10000 675.00 0:00:00 0.00 Securities KHEMANI Pvt. Ltd.
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SANJAY 4/21/1999 15:29:43 25000 610.70 Agbros 15:29:42 25000 610.70 0:00:01 0.00
KHEMANI Securities
Pvt. Ltd.
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SHRUTI 5/10/1999 10:51:13 5000 719.50 Agbros 10:51:13 5000 719.50 0:00:00 0.00
MOHTA Securities
Pvt. Ltd.
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Agbros 5/10/1999 12:52:54 10000 730.50 HERALD 12:52:55 10000 730.50 0:00:01 0.00 Securities EQUITIES Pvt. Ltd. PVT. LTD.
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Agbros 5/10/1999 13:03:29 7000 729.30 CITIZEN 13:03:29 7000 729.30 0:00:00 0.00 Securities SECURITIES Pvt. Ltd. (P) LTD
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Agbros 5/10/1999 14:32:13 6300 730.70 M/s Loknath 14:32:13 6300 730.70 0:00:00 0.00 Securities Saraf Pvt. Ltd.
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Agbros 5/11/1999 10:55:42 15000 758.40 ASHOK 10:55:41 15000 758.40 0:00:01 0.00 Securities KUMAR Pvt. Ltd. PODDAR
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Agbros 5/11/1999 15:05:24 14000 740.50 DINESH 15:05:24 14000 740.50 0:00:00 0.00 Securities KUMAR Pvt. Ltd. SINGHANIA & CO.
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Agbros 5/17/1999 11:35:42 25000 736.50 HERALD 11:35:42 25000 736.50 0:00:00 0.00 Securities EQUITIES Pvt. Ltd. PVT. LTD.
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Agbros 5/18/1999 13:43:01 15000 719.50 HERALD 13:43:01 15000 719.50 0:00:00 0.00 Securities EQUITIES Pvt. Ltd. PVT. LTD.
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Agbros 6/1/1999 11:12:23 30000 643.60 SHRUTI 11:12:21 30000 643.60 0:00:02 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 6/1/1999 12:20:48 50000 651.20 SANJAY 12:20:49 50000 651.20 0:00:01 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 6/1/1999 12:32:08 30000 655.90 KANODIA 12:32:08 30000 655.90 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 6/1/1999 13:42:44 20000 642.70 KANODI 13:42:43 20000 642.70 0:00:01 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 6/1/1999 14:17:51 15000 644.50 TACKEL 14:17:51 15000 644.50 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING SERVICES
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SANJAY 6/9/1999 14:53:03 75000 605.80 Agbros 14:53:03 75000 605.80 0:00:00 0.00
KHEMANI Securities
Pvt. Ltd.
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SANJAY 6/9/1999 14:53:21 75000 606.30 Agbros 14:53:021 75000 606.30 0:00:00 0.00
KHEMANI Securities
Pvt. Ltd.
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SHRUTI 6/21/1999 114:36:24 75000 589.00 Agbros 11:36:24 75000 589.00 0:00:00 0.00
MOHTA Securities
Pvt. Ltd.
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PREM 6/23/1999 14:59:24 5000 675.90 Agbros 14:59:23 5000 675.90 0:00:01 0.00 RATAN Securities BAHETY Pvt. Ltd.
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Agbros 6/28/1999 14:18:26 14000 676.80 HERALD 14:18:26 14000 676.80 0:00:00 0.00 Securities EQUITIES PVT. Pvt. Ltd.
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Agbros 6/28/1999 15:52:57 15000 675.20 TACKEL 15:52:57 15000 675.20 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING SERVICES
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Agbros 7/6/1999 15:08:23 25000 690.80 SANJAY 15:08:24 25000 690.80 0:00:01 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 7/12/1999 11:53:35 25000 712.50 KANODIA 11:53:35 25000 712.50 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 7/12/1999 11:53:45 25000 712.50 KANODIA 11:53:45 25000 712.50 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 7/12/1999 11:59:15 5000 714.10 SHRUTI 11:59:15 5000 714.10 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 7/12/1999 12:38:42 10000 720.40 KANODIA 12:38:41 10000 720.40 0:00:01 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 7/12/1999 15:14:38 25000 726.50 SHRUTI 15:14:38 25000 726.50 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 7/12/1999 15:22:18 15000 724.50 SHRUTI 15:22:17 15000 724.50 0:00:01 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 7/12/1999 15:27:41 10000 731.20 KISHAN 15:27:41 10000 731.20 0:00:00 0.00 Securities CO. Pvt. Ltd.
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Agbros 7/13/1999 13:09:37 70000 730.80 ASHOK 13:09:37 70000 730.80 0:00:00 0.00 Securities KUMAR Pvt. Ltd. PODDAR
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Agbros 7/13/1999 13:29:04 30000 734.70 ASHOK 13:29:04 30000 734.70 0:00:00 0.00 Securities KUMAR Pvt. Ltd. PODDAR
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Agbros 7/16/1999 13:39:48 50000 784.70 SANJAY 13:39:48 50000 784.70 0:00:00 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 7/19/1999 11:16:47 15000 803.00 KHANDELWAL 11:16:47 15000 803.00 0:00:00 0.00 Securities BROS. Pvt. Ltd.
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Agbros 7/21/1999 15:07:54 41000 860.20 ARCHANA 15:07:54 41000 860.20 0:00:00 0.00 Securities KHANDELWAL Pvt. Ltd.
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Agbros 7/26/1999 10:25:31 15000 907.50 SHRUTI 10:25:31 15000 907.50 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 7/27/1999 11:34:29 15000 892.00 KANODIA 11:34:28 15000 892.00 0:00:01 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 7/27/1999 14:28:25 75000 872.70 SANJAY 14:28:24 75000 872.70 0:00:01 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 7/27/1999 14:49:45 50000 874.30 SANJAY 14:49:45 50000 874.30 0:00:00 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 8/3/1999 15:21:40 50000 882.00 SANJAY 15:21:40 50000 882.00 0:00:00 0.00 Securities KHEMANI Pvt. Ltd.
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Agbros 8/9/1999 14:54:15 10000 998.20 SHRUTI 14:54:15 10000 998.20 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 8/11/1999 10:43:29 15000 997.80 SHRUTI 10:43:29 15000 997.80 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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SHANKAR 8/13/1999 11:13:37 20000 1012.80 Agbros 11:13:37 20000 1012.80 0:00:00 0.00 LAL Securities CHOKHANY Pvt. Ltd.
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Agbros 8/16/1999 13:08:52 15000 982.00 J.V.S. 13:08:52 15000 982.00 0:00:00 0.00 Securities SECURITIES Pvt. Ltd. PVT. LTD.
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Agbros 8/27/1999 12:14:14 25000 1051.40 TACKEL 12:14:14 25000 1051.40 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING SERVICES
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Agbros 8/27/1999 12:37:17 25000 1061.20 SHANKAR 12:37:17 25000 1061.20 0:00:00 0.00 Securities LAL Pvt. Ltd. CHOKHANY
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Agbros 8/27/1999 13:07:53 25000 1061.10 KANODIA 13:07:53 25000 1061.10 0:00:00 0.00 Securities STOCK Pvt. Ltd. BROKING (P) LTD
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Agbros 8/27/1999 14:10:15 20000 1087.60 RVS 14:10:16 20000 1087.60 0:00:01 0.00 Securities SHARES & Pvt. Ltd. STOCK BROK. SER.
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TACKEL 8/31/1999 12:48:54 20000 1124.50 Agbros 12:48:54 20000 1124.50 0:00:00 0.00 STOCK BROKING Securities SERVICES Pvt. Ltd.
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RVS 9/1/1999 12:07:17 20000 1125.50 Agbros 12:07:17 20000 1125.50 0:00:00 0.00 SHARES & Securities STOCK BROK. SER. Pvt. Ltd.
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SANJAY 9/1/1999 13:26:13 25000 1126.00 Agbros 13:26:12 25000 1126.00 0:00:01 0.00
KHEMANI Securities
Pvt. Ltd.
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SHRUTI 9/14/1999 13:55:40 20000 1069.50 Agbros 13:55:40 20000 1069.50 0:00:00 0.00
MOHTA Securities
Pvt. Ltd.
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Agbros 10/1/1999 14:00:16 5000 1037.50 MAN 14:00:15 5000 1037.50 0:00:01 0.00 Securities MOHAN Pvt. Ltd. DAMANI
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SHRUTI 10/14/1999 12:18:36 10000 1252.90 Agbros 12:18:36 10000 1252.90 0:00:00 0.00
MOHTA Securities
Pvt. Ltd.
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SHANKAR 10/15/1999 13:14:54 8500 1173.50 Agbros 13:14:54 8500 1173.50 0:00:00 0.00 LAL Securities CHOKHANY Pvt. Ltd.
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SHYAM 10/15/1999 13:16:54 25000 1174.40 Agbros 13:16:54 25000 1174.40 0:00:00 0.00 SUNDAR Securities DALMIA Pvt. Ltd.
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Agbros 10/15/1999 13:19:53 10000 1174.70 SALASAR 13:19:54 10000 1174.70 0:00:01 0.00 Securities STOCK Pvt. Ltd. BROKING LTD.
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RAJESH 10/15/1999 13:41:39 16500 1162.20 Agbros 13:41:38 16500 1162.20 0:00:01 0.00
& CO. Securities
Pvt. Ltd.
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Agbros 10/15/1999 13:47:24 25000 1163.50 GAUTAM 13:47:24 25000 1163.50 0:00:00 0.00 Securities BAJORIA Pvt. Ltd.
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Agbros 10/15/1999 13:56:41 5000 1160.90 NARESH 13:56:41 5000 1160.90 0:00:00 0.00 Securities CHAND Pvt. Ltd. CHANDAK
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SALASAR 10/15/1999 14:14:42 15000 1154.20 Agbros 14:14:42 15000 1154.20 0:00:00 0.00 STOCK Securities BROKING LTD. Pvt. Ltd.
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PAWAN 10/15/1999 14:30:53 5000 1127.10 Agbros 14:30:53 5000 1127.10 0:00:00 0.00 KUMAR Securities TODI Pvt. Ltd.
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SANJAY 10/15/1999 14:32:28 25000 1132.50 Agbros 14:32:28 25000 1132.50 0:00:00 0.00
KHEMANI Securities
Pvt. Ltd.
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LOHIA 10/15/1999 15:20:38 5000 1114.50 Agbros 15:20:38 5000 1114.50 0:00:00 0.00 SECURITIES Securities LTD. Pvt. Ltd.
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KCGP 10/15/1999 15:24:29 6000 1111.40 Agbros 15:24:29 6000 1111.40 0:00:00 0.00 Share Broking Securities Services Pv Pvt. Ltd.
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Agbros 10/22/1999 13:45:07 5000 1033.80 RAJESH 13:45:07 5000 1033.80 0:00:00 0.00 Securities & CO. Pvt. Ltd.
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Agbros 10/26/1999 12:24:17 7500 1008.50 SHRUTI 12:24:17 7500 1008.50 0:00:00 0.00 Securities MOHTA Pvt. Ltd.
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Agbros 10/26/1999 15:04:55 25000 999.70 DINESH 15:04:55 25000 999.70 0:00:00 0.00 Securities KUMAR Pvt. Ltd. SINGHANIA & CO.
5.6 I find that the Broker had executed 67 instances of synchronized trades in Ranbaxy with the counter party brokers on 33 days. The total quantity involved in the said 67 synchronized trades were 14,58,300 shares of Ranbaxy. I observe that in all cases order quantity and price are same with counter party order quantity and price. Orders were placed at the same time in most of the cases with counter party members while in few cases the orders were matched within a period of 1-2 seconds.
5.7 The Enquiry Officer examined the submission of the Broker that some orders (418000 shares) had been executed in part (of small quantities) at a different rate and not as a single lot. The Enquiry Officer observed that even these orders were matched within a period of 1-2 seconds with counter party brokers and percentage of such trades was 28.6%. The Enquiry Officer also observed that even if the said contention of the Broker is accepted and the said trades are taken out from their total trades in Ranbaxy, the remaining 10,40,000 shares were still matched by the Broker with the counter party brokers which cannot be considered as a mere coincidence.
5.8 I have also noted that the Broker executed more than one synchronised trades on several days especially on May 10, 1999(4 trades), May 11, 1999(2 trades), June 1, 1999(5 trades), June 9, 1999(2 trades), June 28,1999(2 trades), July 12, 1999(7 trades), July 13, 1999(2 trades), July 27, 1999(3 trades), August 27,1999(2 trades), September 1, 1999(2 trades), October15,1999(11 trades) and October 26, 1999 (2 trades) and this can not be considered as mere a coincidence. Further, synchronized deals are possible if the trades are put in the system with prior understanding. In such cases prices and quantities have been negotiated outside the system and orders had been executed simultaneously. 5.9 I have also observed that orders of 1,54,000 shares out of total of 14,58,300 shares (i.e. 11%) of the Broker were matched with brokers who had dealt for entities connected or associated with Ketan Parekh group. The details of the said transactions are given hereunder.
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Mem MemberName OrderDate Time Qty Price Buy/ OrderNo Code Sell
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D0543 ASHOK KUMAR PODDAR 5/11/1999 10:55:41 15000 758.40 S 103192
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D0851 AGBROS SECURITIES 5/11/1999 10:55:42 15000 758.40 B 103193
PVT LTD
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D0456 DINESH KUMAR 5/11/1999 15:05:24 14000 740.50 S 108869
SINGHANIA
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D0851 AGBROS SECURITIES 5/11/1999 15:05:24 14000 740.50 B 108868
PVT LTD
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D0543 ASHOK KUMAR PODDAR 7/13/1999 13:09:37 70000 730.80 S 429176
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D0851 AGBROS SECURITIES 7/13/1999 13:09:37 70000 730.80 B 429177
PVT LTD
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D0851 AGBROS SECURITIES 7/13/1999 13:29:04 30000 734.70 B 430277
PVT LTD
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D0543 ASHOK KUMAR PODDAR 7/13/1999 13:29:04 30000 734.70 S 430276
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D0851 AGBROS SECURITIES 10/26/1999 15:04:55 25000 999.70 B 1290144214 PVT LTD
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D0456 DINESH KUMAR 10/26/1999 15:04:55 25000 999.70 S 1320139472
SINGHANIA
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5.10 I also observe that the aforementioned brokers have been declared defaulters by CSE and SEBI has subsequently cancelled the registrations of these brokers as per Press Release dated October 22, 2001. The Broker has not disputed the said finding. However, they contended that they are not aware of any linkage between the brokers listed above and the Ketan Parekh Group. In this context, I observe that some other brokers against whom similar kind of proceedings were initiated had also executed two or three such trades with KP related entities and the same can be mere coincidence. However, in the instant case, the Broker executed five instances of synchronised trades with the above KP related entities including two instances of synchronised trades on May 11, 1999 and July 13, 1999 and the said transactions can not be treated as mere coincidence.
5.11 I find that the Broker never disputed the said 67 instances of synchronized trades. What they submitted before me is that they had no intention to get the transaction artificially matched since they had traded on the screen based system where the automated trading server matches purchase orders and sale orders without human intervention. In their latest written submission dated October 27, 2006, they have also stated that there was no reversal or circular pattern. However, from the above table, I observe that the Broker had reversed its buy position of June 01, 1999 with Sanjay Khemani on June 09, 1999. Similar trades were also observed with the Broker Tackel Stock broking on August 27, 1999 and August 31, 1999. Hence, the contention of the Broker does not hold good.
5.12 Further, they also submitted that there was gap in between their order and counter party orders. In this regard, I find that in most of the instances the orders were executed at zero seconds which is maximum synchronization per se possible in any case. In such cases prices and quantities have been negotiated outside the system and orders had been executed simultaneously. Otherwise there was no possibility of such perfect matching of quantity and price etc. It may be noted that synchronized deals with exact matching of price and quantity for 67 instances of trade are only possible if the trades are put in the system with prior understanding. The intention of the parties to execute such synchronized transactions could be inferred from the above attending circumstances especially execution of several synchronised transactions in a single day, circular nature of trading and reversal of transactions etc. Further, I observe that the standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct.
5.13 I also find that the entire charge against the broker is synchronized deals with an intention to make undue benefits which is evident from the above explained transactions. The Broker submitted that percentage of their volume when compared to the market volume in the scrip of Ranbaxy is negligible. I am of the view that any broker intention to use the technique of synchronization of trade will definitely affect the price discovery of the exchange and the same will also reflect in the market. I find that the relevant details of the said synchronized trades had been furnished to the broker. The intention of the parties to execute such synchronized transactions could be inferred from the above attending circumstances especially execution of several synchronised transactions in a single day.
5.14 In view of these, I find that that Broker has put these trades with a view to create misleading appearance of trading. This synchronization of trades tampers with price discovery mechanism of stock exchange and is against the concept of transparency. The synchronized deals entered into by the Broker abetted in creating artificial volumes and false market in the scrip of Ranbaxy. Further Broker through these dealings in the scrip of Ranbaxy has violated the provisions of Regulation 4(b) and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, which provides that, 4 No person shall
(b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;
(c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions;
5.15 Further, the Broker has violated Regulation 7 read with the Clause A(3) and (4) of Code of Conduct as specified in Schedule II of Stock Brokers Regulations, which provides that (3) Manipulation : A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.
(4) Malpractices : A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.
5.16 I have also noted that the Broker was earlier suspended for a period of nine months vide order dated April 23, 2003 passed by then Chairman of SEBI. Having considered all aspects and circumstances of the case, I am satisfied that it is necessary as a deterrent to impose penalty on the Broker. However, considering the volume of synchronised trades executed by the Broker in Ranbaxy when comparing with market volume of Ranbaxy, I am of the view that the certificate of registration of the Broker for a period of 7 days should be suspended.
6.0 ORDER 6.1 Taking into account all facts and circumstances of the case and in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 read with Regulation 13(4) of SEBI Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby impose a minor penalty of suspension of certificate of registration of the Broker, M/s Agbros Securities Pvt. Ltd. with SEBI Registration No. INB031017534 for a period of 7 days.
6.2 This order shall come into force immediately on the expiry of twenty one days from the date of this order.