before the adjudicating officer securities and … · noticees are sebi registered brokers, had...
TRANSCRIPT
Page 1 of 22
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. EAD-2/AO/ 174-175 /2013]
________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,
1995
Against
1. ISF Securities Ltd [PAN: AAACI1667E]
&
2. Vishwas Securities Limited [PAN: AAACV2921N]
In the matter of
Exedy India Limited
Background:
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
conducted an investigation into the dealings in the scrip of Exedy India
Limited erstwhile Ceekay Daikin Limited (hereinafter referred to as EIL) and
into the possible violation of the SEBI Act, 1992 (hereinafter referred to as the
Act) and various Rules and Regulations made there under. The investigation
was initiated as there was a sharp rise in the price of the scrip at the Bombay
Stock Exchange (hereinafter referred to as “BSE”) during the period April 01,
2009 to October 31, 2009. During the investigation period, the price of the
scrip of EIL rose from ` 22.70 to a high of ` 119.60 (i.e., a rise of 431%).
Page 2 of 22
2. The Investigation, inter alia, revealed that two clients, namely, ISF Securities
Ltd (hereinafter referred to as ISF) dealing in its proprietary account and
Vishwas Securities Ltd (hereinafter referred to as VSL) dealing through
trading member SIC Stocks and Services P. Ltd (hereinafter collectively
referred to as the Noticees) executed trades amongst themselves in large
quantities and created artificial volume and price increase in the scrip of EIL.
The Noticees had also executed self trades which are fictitious in nature.
3. SEBI has, therefore, initiated adjudication proceedings under the Act to
inquire into and adjudge the alleged violations of the provisions mentioned
under Regulations 3(a) & (d) and 4(1) & 4(2)(a) and (g) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations)
against the Noticees and also Clauses A(1), (3), (4) and (5) of the Code of
Conduct as specified under Schedule II of Regulation 7 of the SEBI (Stock
Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as the
Broker Regulations) against ISF.
Appointment of Adjudicating Officer:
4. SEBI vide Order dated October 09, 2012 appointed the undersigned as the
Adjudicating Officer (AO) under Section 15-I of the SEBI Act read with Rule 3
of SEBI (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 (hereinafter referred to as the ‘Adjudication
Rules’) to inquire into and adjudge under Section 15HA and 15HB of the Act
for the alleged violation of the abovementioned provisions of PFUTP
Regulations and Broker Regulations by the Noticees.
Notice, Reply & Personal Hearing:
5. Accordingly, a common notice dated November 12, 2012 (hereinafter referred
to as the ‘SCN’) was issued to the Noticees in terms of Rule 4 of the
Adjudication Rules requiring them to show cause as to why an inquiry should
Page 3 of 22
not be held for the alleged violations. It was alleged in the SCN that the
Noticees are SEBI registered brokers, had dealt in the scrip of EIL as clients
and contributed at around 35% of the total trading volume in the scrip during
the investigation period. Further, the Noticees had matched themselves for
1,22,350 shares which comprise more than 50% of their buy quantity and
35% of their sell quantity respectively. The Noticees also entered into self
trades on several occasions thereby creating artificial / fictitious volumes in
the scrip of EIL.
6. The SCN was duly delivered to the Noticees. The Noticees vide their letters
dated December 03, 2012 and November 25, 2012, respectively, replied to
the SCN. ISF vide its letter dated December 03, 2012 requested for certain
documents. Vide e-mail dated December 18, 2012 it was informed to ISF that
all the material relied upon while issuing the SCN has already been provided
to it with the SCN and accordingly, it was advised to submit its detailed reply,
if any, latest by December 28, 2012. ISF has submitted that they have sought
details of order logs, trade logs and details of synchronized trades with VSL
from BSE and the same were expected shortly. Therefore, they sought
extension of 15 days to submit their reply to the SCN. Accordingly, ISF
submitted its detailed reply vide letter dated December 31, 2012.
7. VSL vide its reply dated November 25, 2012 denied the charges levelled
against it in the SCN. VSL submitted that it entered into maximum
transactions between the price ranges of ` 24.65 to ` 43.70 during May 20,
2009 to June 08, 2009 and the price difference was only ` 19.05. The
transactions done by them are not the cause to increase the share price of
431% during the investigation period. Further, since their company has not
been working from last four years, they were not in a position to find out the
data in their office.
8. In the interest of natural justice and in order to conduct an inquiry as per Rule
4 (3) of the Adjudication Rules, an opportunity of personal hearing was
granted to the Noticees on January 07, 2013. The authorized representative
along with one Mr. Sunil Khemka, Director of ISF attended the said hearing
Page 4 of 22
and made oral submissions. They reiterated the submissions made in their
reply dated December 31, 2012. VSL did not attend the said hearing on the
scheduled date.
9. Another opportunity of hearing was granted to VSL on February 08, 2013. The
Noticee did not attend the said hearing, but vide letter dated February 13,
2013 informed that it received the notice of hearing only on February 08, 2013
and therefore, requested for another opportunity of hearing. Accordingly, vide
notice dated February 21, 2013 last and final opportunity of hearing was
granted to it on March 05, 2013. However, the Noticee failed to appear before
me on the said date. In view of the above, I note that ample time and
opportunities were given to VSL to appear for personal hearing and present its
case in this matter to meet the ends of natural justice.
10. In view of the above, I am proceeding with the inquiry taking into account the
documents and material as available on record.
Consideration of Issues, Evidence and Findings:
11. I have carefully perused the charges against the Noticees as per the SCN,
oral and written submissions made by the Noticees and the materials as
available on record. The issues that arise for consideration in the present
case are:
(a) Whether the Noticees have violated the provisions of Regulations
3(a) & (d) and 4(1), 4(2)(a) and (g) of the SEBI PFUTP Regulations and
ISF has also violated Clauses A(1), (3), (4) and (5) of the Code of
Conduct as specified under Schedule II of Regulation 7 of the SEBI
Broker Regulations?
(b) Does the violation, if any, on the part of the Noticees attract any
penalty under Sections 15HA and 15HB of the Act?
(c) If yes, what should be the quantum of penalty?
Page 5 of 22
12. Before moving forward, it will be appropriate to refer to the relevant provisions
which read as under:-
Relevant provisions of PFUTP Regulations:
3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b)........ (c)......... (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.
4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b)............ (c)............. (d)............. (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;
Relevant provisions of Broker Regulations:
Stock brokers to abide by Code of Conduct. 7. The stock broker holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule II. SCHEDULE II
A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business.
Page 6 of 22
(2).......... (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 stockbroker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.
13. I find from the documents available on record that EIL is a company listed on
BSE. It is a manufacturer of clutches and supplier to the original equipment
market such as TELCO, Maruti, Mahindra, Eicher, Premier Auto etc.
Company has its address at Plot L-4, MIDC Industrial Area, Chikalthana,
Aurangabad. The shareholding pattern of the EIL during the quarter ended
March 2009 to December 2009 is as given below:
Particular
Quarter ended March 2009
Quarter ended June 2009
Quarter ended Sept. 2009
Quarter ended Dec. 2009
No. of shareholders
No. Of shares
% No. of shareholders
No. Of shares
% No. of shareholders
No. Of shares
% No. of shareholders
No. Of shares
%
Promoter Holding
11 12,34,438 30.62 11 12,34,438 30.62 11 12,34,438 30.62 10 12,34,438 30.62
Non Promoter Holding
2029 27,97,058 69.38 2007 27,97,058 69.38 1914 27,97,058 69.38 1902 27,97,058 69.38
Total share capital
2040 40,31,496 100 2018 40,31,496 100 1925 40,31,496 100 1912 40,31,496 100
The shareholding pattern shows no major change over the quarters from
March 2009 to December 2009.
Page 7 of 22
14. The quarterly results of the company for various quarters which covers the
period of Investigation are summarized as follows:
(Rs. in crores)
Description Quarter Ended
March 31, 2009 June 30, 2009 Sept 30, 2009 Dec 31, 2009
Net sales 27.22 31.85 37.91 36.18 Other Income 0.67 1.16 0.60 3.22 Total income 27.89 33.01 38.51 39.40 PBIT -0.77 2.06 0.75 1.21 Net Profit -2.57 0.11 -0.80 -0.30
15. The yearly results of EIL for the three financial years are given below:
Description Year Ended
31-Mar-2008 31-Mar-2009 31-Mar-2010 Net sales 100.46 104.04 152.67
Other Income 2.10 2.99 8.28
Total income 102.56 107.03 160.95
PBIT 6.91 -1.89 5.28
Net Profit 2.66 -7.30 -1.12
16. EIL has made following corporate announcements during the investigation period:
Sr. No.
Exported
Date & Time
Announcement Price Impact/Shares Traded Remarks
1 08-05-2009 17:54
Ceekay Daikin - Unaudited Financial Results for Mar 31, 2009--Ceekay Daikin Ltd has informed BSE about the unaudited financial results for the Quarter & Year ended March 31, 2009.
08/05/2009 Friday BSE
O H L C
21.50 21.95 21.50 21.90 No. of shares traded: 260 11/05/2009 Monday BSE
O H L C 21.90 22.00 21.00 21.05
No. of shares traded: 925
On Monday, the scrip opened at previous close and closed at 3.88% lower than previous day’s close.
2 24-07-2009 17:59
Ceekay Daikin - Financial Results for Mar 31 & Jun 30, 2009--Ceekay Daikin Ltd has informed BSE about the financial results for the Year ended March 31, 2009 Quarter ended June 30, 2009.
24/07/2009 Friday BSE
O H L C
50.10 50.10 50.10 50.10 No. of shares traded: 1625 27/07/2009 Monday BSE
O H L C 52.60 52.60 52.60 52.60
No. of shares traded: 1870
On Monday, the scrip opened and closed at 4.99% higher than previous day’s close
3 25-09-2009 12:32
Ceekay Daikin - Outcome of AGM-- held on September 25, 2009, inter alia, have accorded the following: (1). Adoption of the Balance Sheet as at March 31,
24/09/2009 Thursday BSE
O H L C
78.00 79.05 77.10 79.05 No. of shares traded: 3302
On Friday, opened at 4.81% higher than previous close
Page 8 of 22
Sr. No.
Exported
Date & Time
Announcement Price Impact/Shares Traded Remarks
2009 and Profit & Loss Account for the year ended March 31, 2008 together with the Report of the Auditors & the Directors thereon. (2). Re-appointment of Directors of the Company, liable to retire by rotation. (3). Re-appointment of Auditors of the Company. (4) increasing the Borrowing power of the Company upto Rs 150 Crores (5) appointment of Mr. Hideshi Shiba, Mr.Mahesh B Kothari, Mr. Pradeep B Chinai as Managing Directors for the period of three years from October 01, 2009 to September 30, 2012.
25/09/2009 Friday BSE
O H L C 82.85 82.85 75.10 75.30
No. of shares traded: 3989
and closed at 4.74% lower than previous day’s close.
4 29-10-2009 20:01
Ceekay Daikin - Financial Results for Sep 30, 2009--Ceekay Daikin Ltd has informed BSE about the financial results for the Quarter ended September 30, 2009.
29/10/2009 Thursday BSE
O H L C
61.85 67.00 61.80 67.00 No. of shares traded: 150 30/10/2009 Friday BSE
O H L C 64.00 64.25 63.70 63.70
No. of shares traded: 570
On Friday, the scrip opened at 4.47% lower to previous close and closed at 4.93% lower than previous day’s close
From the table, it is seen that except for the announcement related to results
of quarter ended June 2009, all other announcements had negative impact on
the scrip price.
17. The Price Volume data of the scrip on BSE for the period before, during and
after the investigation period is given below:
Period Dates Opening
Price (volume) on first day of the period
Closing price (volume) on last day of the period (Rs.)
Low price(volume) during the period (Rs.)
High Price(volume) during the period (Rs.)
Avg. no. of (shares) traded daily during the period
Before Investigation period
March 01, 2009 to March 31, 2009
Price 25 18.35 17.2 29.2 (6,503)
Vol (5,428) (4,491) (35) (35,791)
During Investigation Period
April 01, 2009 to October 31, 2009
Price 17.80 63.70 17.80 119.60 (10,267)
Vol (1903) (570) (5) (72,562) After investigation period
November 1, 2009 to November 30, 2009
Price 62.5 50.1 50.1 62.5 (437)
Vol (595) (1,791) (28) (1,791)
Page 9 of 22
It can be seen from the table that the average daily traded volume was higher
during the investigation period as compared to before and after the
investigation period. The highest recorded price per share was ` 119.60 on
20 August, 2009.
18. The price volume chart on BSE for the period of investigation is as under:
The total volumes traded on BSE during the Investigation period was
14,27,128 shares whereas average traded volume was 10,267 shares per
day.
19. The price volume data for the scrip for the period April to October 2009 is as
given below:
Day Date Open High Low Close No Of Trades
Total Traded
Quantity TURNOVER %
change
01-April-2009 17.80 19.25 17.80 18.75 22.00 1903 36,177.00 002-April-2009 19.40 19.65 18.70 19.65 13.00 740 14,418.00 4.80%06-April-2009 19.65 20.50 19.65 19.90 43.00 3403 68,209.00 1.27%08-April-2009 20.25 20.40 20.00 20.15 21.00 1415 28,546.00 1.26%09-April-2009 20.90 21.15 20.50 21.15 32.00 2858 59,858.00 4.96%13-April-2009 21.30 22.20 20.85 22.00 39.00 3875 84,622.00 4.02%15-April-2009 21.35 22.75 21.25 22.15 41.00 3630 80,407.00 0.68%16-April-2009 21.90 22.00 21.05 21.85 19.00 2345 49,898.00 -1.35%17-April-2009 21.00 22.00 21.00 22.00 2.00 1200 25,400.00 0.69%20-April-2009 21.30 22.35 21.00 21.45 30.00 2751 59,363.00 -2.50%22-April-2009 20.50 20.50 20.40 20.45 6.00 900 18,395.00 -4.66%
01000020000300004000050000600007000080000
0.00
20.00
40.00
60.00
80.00
100.00
120.00V
o
l
u
m
e
Price
Price Volume Exedy India
Total Traded Quantity
Closing Price
Page 10 of 22
23-April-2009 21.05 21.45 21.05 21.45 6.00 800 17,050.00 4.89%24-April-2009 21.50 21.50 21.50 21.50 2.00 225 4,837.00 0.23%27-April-2009 22.15 22.15 22.15 22.15 2.00 20 443.00 3.02%28-April-2009 22.45 22.60 22.45 22.50 3.00 198 4,455.00 1.58%29-April-2009 21.50 21.50 21.50 21.50 2.00 325 6,987.00 -4.44%04-May-2009 20.70 22.00 20.70 20.75 10.00 1675 35,199.00 -3.49%05-May-2009 20.10 20.10 19.75 19.75 21.00 3726 73,765.00 -4.82%06-May-2009 20.40 20.70 20.40 20.65 20.00 1202 24,781.00 4.56%08-May-2009 21.50 21.95 21.50 21.90 4.00 260 5,615.00 6.05%11-May-2009 21.90 22.00 21.00 21.05 8.00 925 20,092.00 -3.88%12-May-2009 22.00 22.40 22.00 22.20 6.00 218 4,836.00 5.46%13-May-2009 21.95 22.00 21.95 22.00 3.00 200 4,397.00 -0.90%15-May-2009 20.35 22.40 20.35 20.65 14.00 2625 57,556.00 -6.14%19-May-2009 22.50 22.70 22.50 22.70 27.00 8008 1,81,712.00 9.93%20-May-2009 24.65 24.75 23.25 24.60 108.00 23005 5,49,967.00 8.37%21-May-2009 26.30 26.90 24.00 24.75 145.00 30881 7,82,951.00 0.61%22-May-2009 25.95 26.05 24.20 25.85 118.00 22351 5,68,279.00 4.44%25-May-2009 26.00 27.10 26.00 27.10 40.00 39410 10,67,226.00 4.84%26-May-2009 28.45 28.45 27.50 28.45 170.00 63521 17,90,741.00 4.98%27-May-2009 29.75 29.85 28.60 29.85 121.00 72562 21,46,260.00 4.92%28-May-2009 31.00 31.30 29.85 31.30 169.00 46690 14,38,273.00 4.86%29-May-2009 32.70 32.85 31.40 32.85 148.00 54691 17,75,083.00 4.95%01-June-2009 33.00 34.45 32.85 34.45 233.00 67300 22,98,689.00 4.87%02-June-2009 35.90 36.15 34.70 36.15 146.00 49289 17,63,755.00 4.93%03-June-2009 37.90 37.95 35.00 37.95 167.00 42117 15,71,683.00 4.98%04-June-2009 39.80 39.80 38.25 39.80 50.00 27927 11,10,382.00 4.87%05-June-2009 41.75 41.75 40.50 41.75 68.00 18274 7,61,378.00 4.90%08-June-2009 43.70 43.70 39.70 39.70 106.00 20334 8,34,890.00 -4.91%09-June-2009 37.75 37.75 37.75 37.75 7.00 802 30,275.00 -4.91%10-June-2009 35.90 35.90 35.90 35.90 9.00 2651 95,170.00 -4.90%11-June-2009 34.15 34.15 34.15 34.15 6.00 720 24,588.00 -4.87%12-June-2009 32.45 32.45 32.45 32.45 12.00 5310 1,72,309.00 -4.98%15-June-2009 30.85 30.85 30.85 30.85 4.00 810 24,988.00 -4.93%16-June-2009 29.35 32.05 29.35 31.30 80.00 12134 3,67,408.00 1.46%17-June-2009 32.75 32.75 29.75 29.75 73.00 19924 6,04,810.00 -4.95%18-June-2009 29.50 30.80 28.30 28.30 34.00 4929 1,46,416.00 -4.87%19-June-2009 29.60 29.60 26.90 28.20 58.00 15589 4,37,000.00 -0.35%22-June-2009 29.45 29.45 26.80 27.95 45.00 8309 2,32,771.00 -0.89%23-June-2009 28.50 28.50 26.60 27.00 35.00 7318 1,98,560.00 -3.40%24-June-2009 28.35 28.35 27.05 27.40 23.00 3070 84,814.00 1.48%25-June-2009 28.75 28.75 26.05 27.35 63.00 11399 3,04,448.00 -0.18%26-June-2009 28.20 28.20 26.05 27.35 36.00 7405 1,99,250.00 0.00%29-June-2009 28.45 28.45 26.60 26.90 20.00 8475 2,28,055.00 -1.65%30-June-2009 27.80 27.80 25.85 26.60 61.00 13780 3,65,134.00 -1.12%01-July-2009 27.70 27.90 26.75 27.90 53.00 10641 2,94,605.00 4.89%
Page 11 of 22
02-July-2009 33.15 33.15 26.10 29.25 72.00 15946 4,96,656.00 4.84%03-July-2009 30.65 30.65 28.15 29.80 62.00 19537 5,86,420.00 1.88%06-July-2009 30.80 30.80 28.75 29.50 46.00 11717 3,47,686.00 -1.01%07-July-2009 30.95 30.95 28.50 30.65 57.00 15016 4,53,840.00 3.90%08-July-2009 32.15 32.15 29.15 31.05 77.00 28847 8,84,582.00 1.31%09-July-2009 32.10 32.60 30.20 32.60 87.00 35400 11,42,310.00 4.99%10-July-2009 32.90 34.20 32.05 33.35 85.00 20467 6,83,337.00 2.30%13-July-2009 34.80 34.80 32.50 32.55 15.00 7535 2,51,205.00 -2.40%14-July-2009 33.85 34.15 31.55 34.15 47.00 15343 5,16,881.00 4.92%15-July-2009 35.85 35.85 33.90 35.75 40.00 15846 5,65,815.00 4.69%16-July-2009 37.50 37.50 35.30 37.50 82.00 17751 6,64,009.00 4.90%17-July-2009 39.35 39.35 39.30 39.35 73.00 11586 4,55,809.00 4.93%20-July-2009 41.30 41.30 41.30 41.30 11.00 3070 1,26,791.00 4.96%21-July-2009 43.35 43.35 43.35 43.35 6.00 1075 46,601.00 4.96%22-July-2009 45.50 45.50 45.50 45.50 11.00 4723 2,14,896.00 4.96%23-July-2009 47.75 47.75 47.75 47.75 7.00 1925 91,918.00 4.95%24-July-2009 50.10 50.10 50.10 50.10 5.00 1625 81,412.00 4.92%27-July-2009 52.60 52.60 52.60 52.60 10.00 1870 98,362.00 4.99%28-July-2009 55.20 55.20 55.20 55.20 15.00 4498 2,48,289.00 4.94%29-July-2009 57.95 57.95 52.45 57.95 110.00 41885 24,09,478.00 4.98%30-July-2009 60.20 60.80 55.10 60.20 93.00 24713 14,54,038.00 3.88%31-July-2009 61.50 61.50 57.20 60.65 77.00 11358 6,69,761.00 0.75%03-August-2009 61.00 63.65 60.50 63.65 78.00 50233 31,80,959.00 4.95%04-August-2009 66.00 66.80 65.00 66.80 36.00 17084 11,38,906.00 4.95%05-August-2009 70.10 70.10 68.30 70.10 42.00 28410 19,90,988.00 4.94%06-August-2009 73.60 73.60 73.60 73.60 38.00 17058 12,55,468.00 4.99%07-August-2009 76.95 77.25 75.00 77.25 71.00 27942 21,56,595.00 4.96%10-August-2009 81.10 81.10 81.00 81.10 71.00 16855 13,66,901.00 4.98%11-August-2009 85.15 85.15 81.05 85.15 91.00 21180 18,02,011.00 4.99%12-August-2009 89.10 89.40 86.85 89.40 68.00 8241 7,31,974.00 4.99%13-August-2009 93.85 93.85 88.60 93.85 107.00 11221 10,47,867.00 4.98%14-August-2009 96.00 98.50 96.00 98.50 141.00 12659 12,45,941.00 4.95%17-August-2009 103.40 103.40 99.00 103.40 45.00 11458 11,84,645.00 4.97%18-August-2009 108.40 108.55 108.40 108.55 142.00 12909 14,01,259.00 4.98%19-August-2009 113.95 113.95 113.70 113.95 79.00 8778 10,00,213.00 4.97%20-August-2009 117.50 119.60 108.30 108.30 124.00 29492 33,52,672.00 -4.96%21-August-2009 102.90 102.90 102.90 102.90 10.00 1190 1,22,451.00 -4.99%24-August-2009 97.80 97.80 97.80 97.80 5.00 570 55,746.00 -4.96%25-August-2009 92.95 92.95 92.95 92.95 6.00 200 18,590.00 -4.96%26-August-2009 88.35 88.35 88.35 88.35 15.00 1435 1,26,782.00 -4.95%27-August-2009 83.95 83.95 83.95 83.95 7.00 260 21,827.00 -4.98%28-August-2009 79.80 79.80 79.80 79.80 41.00 12782 10,20,003.00 -4.94%31-August-2009 75.85 75.85 75.85 75.85 13.00 1264 95,874.00 -4.95%01-September-2009 72.10 72.10 72.10 72.10 19.00 4950 3,56,895.00 -4.94%
Page 12 of 22
02-September-2009 68.50 69.00 68.50 68.70 52.00 3684 2,52,447.00 -4.72%03-September-2009 70.00 72.00 66.00 70.65 41.00 2426 1,70,111.00 2.84%04-September-2009 69.30 74.15 69.30 73.70 31.00 3918 2,87,476.00 4.32%07-September-2009 73.05 73.05 70.05 71.00 20.00 1246 89,396.00 -3.66%08-September-2009 68.00 71.00 67.50 67.65 37.00 2502 1,70,187.00 -4.72%09-September-2009 65.50 66.50 64.35 66.35 14.00 1752 1,14,187.00 -1.92%10-September-2009 65.00 65.00 63.05 63.35 22.00 1231 77,761.00 -4.52%11-September-2009 62.30 66.50 60.20 66.50 20.00 6110 3,81,495.00 4.97%14-September-2009 66.50 66.50 63.25 63.25 9.00 865 55,512.00 -4.89%15-September-2009 61.25 61.25 61.20 61.20 2.00 250 15,305.00 -3.24%16-September-2009 61.20 62.00 61.20 62.00 10.00 677 41,595.00 1.31%17-September-2009 65.10 65.10 64.80 65.10 14.00 4475 2,91,212.00 5.00%18-September-2009 66.00 68.35 65.00 68.35 18.00 4855 3,29,626.00 4.99%22-September-2009 71.75 71.75 71.75 71.75 9.00 1563 1,12,145.00 4.97%23-September-2009 73.00 75.30 73.00 75.30 21.00 2583 1,94,129.00 4.95%24-September-2009 78.00 79.05 77.10 79.05 32.00 3302 2,59,971.00 4.98%25-September-2009 82.85 82.85 75.10 75.30 49.00 3989 3,16,799.00 -4.74%29-September-2009 79.05 79.05 71.55 72.35 21.00 1420 1,05,448.00 -3.92%30-September-2009 74.70 74.70 74.70 74.70 1.00 10 747.00 3.25%01-October-2009 78.35 78.40 72.00 75.25 18.00 3175 2,38,436.00 0.74%05-October-2009 75.00 77.95 71.50 76.95 11.00 587 43,129.00 2.26%06-October-2009 73.15 76.00 73.15 73.15 8.00 860 63,621.00 -4.94%07-October-2009 72.10 76.25 72.10 72.80 4.00 229 16,953.00 -0.48%08-October-2009 72.00 72.00 69.80 69.80 2.00 110 7,898.00 -4.12%09-October-2009 70.50 72.00 70.50 71.00 10.00 950 67,445.00 1.72%12-October-2009 72.50 74.55 68.00 74.55 18.00 1418 1,04,259.00 5.00%14-October-2009 70.95 78.20 70.90 78.00 22.00 2039 1,55,358.00 4.63%15-October-2009 74.30 74.50 74.30 74.50 7.00 203 15,111.00 -4.49%16-October-2009 71.00 77.45 71.00 74.80 3.00 40 2,923.00 0.40%17-October-2009 72.50 72.50 72.50 72.50 1.00 50 3,625.00 -3.07%20-October-2009 76.10 76.10 70.10 70.35 7.00 1841 1,30,864.00 -2.97%21-October-2009 72.00 72.00 67.90 67.95 8.00 1095 77,248.00 -3.41%22-October-2009 66.00 71.30 66.00 71.20 6.00 1640 1,15,259.00 4.78%23-October-2009 69.00 69.00 69.00 69.00 1.00 50 3,450.00 -3.09%26-October-2009 66.00 71.00 66.00 71.00 5.00 229 15,247.00 2.90%27-October-2009 67.65 67.65 67.65 67.65 1.00 5 338.00 -4.72%28-October-2009 71.00 71.00 64.30 65.00 4.00 80 5,486.00 -3.92%29-October-2009 61.85 67.00 61.80 67.00 4.00 150 9,530.00 3.08%30-October-2009 64.00 64.25 63.70 63.70 10.00 570 36,374.00 -4.93%
Page 13 of 22
20. The comparison of the stock with BSE auto index during investigation period
is shown below:
It can be seen that except for period from July 2009 to September 2009 the
scrip moved in tandem with BSE auto index. Presently the scrip is delisted
from BSE.
21. From the foregoing, I observe that the scrip of EIL is thinly traded within a
price band of 5% showing highly inefficient price discovery at the exchange.
Though there were no major corporate announcements impacting the price of
the scrip, it hit the upper circuit on 25 days out of 27 consecutive trading days
starting from July 14, 2009 to August 19, 2009 and peaked at ` 113.95
starting from ` 32.55. Thereafter, the scrip of EIL hit lower circuit on ten
consecutive trading days to close at ` 68.70 on September 03, 2009.
22. I find that ISF is a member of NSE, BSE and USE as also a depository
participant of CDSL. It has traded in the scrip of EIL on its proprietary account.
It was one of the top brokers and clients in trading the scrip of EIL on buy and
0.00
20.00
40.00
60.00
80.00
100.00
120.00
20002500300035004000450050005500600065007000
BSE Auto
Exedy
Page 14 of 22
sell during the investigation period. As a broker, ISF bought 218206 shares
contributing 15.29% of the total market volume. On the other side, it sold
303352 shares contributing 21.26% of the total market volume. As a client,
ISF purchased 213206 shares and sold 303352 shares respectively. ISF on
its own submitted that it had invested in the scrip of EIL long back in the year
2007 onwards and was holding 92641 shares of EIL as on March 31, 2009
and that it did not enter into any off-market transactions with other entities to
acquire the said shares. It is therefore clear that ISF offloaded a net quantity
of 90146 shares during the investigation period. The entire offloading of
shares have been done while the price of the scrip was peaking during July-
August, 2009. ISF in its reply to the SCN submitted that it has not traded in
the scrip of EIL after August 05, 2009 as it had disposed off all its shares by
then. They have disposed of the entire lot of 92641 shares at an average
price of ` 34.86 which is much much lower than the market highest price of
` 119. However, the fact remains that the price of the scrip was hovering in
the twenties during April-May, 2009 which was rigged up and they could
offload at an average price of ` 34.86. The increase in price upto ` 119 may
be matter for further investigation but not the subject of our present inquiry.
23. VSL is a SEBI registered stock broker of NSE traded in the scrip of EIL as a
client through SIC Stocks and Services Pvt. Ltd. VSL purchased 218667
shares and sold 234259 shares contributing 15.32% and 18.52% of the total
market volume respectively during the investigation period. VSL offloaded a
net quantity of 45592 shares in the market.
24. It is interesting to note how the Noticees managed to offload such large
quantities of shares of EIL while the price of the scrip was rising in the market
even in the absence of any major corporate announcements or other external
developments. In this context, one has to remember that the shares of EIL are
thinly traded and even offloading a small quantity of shares would take the
price to the lower price band level. It is noted in the investigation report that
the Noticees have matched trades for 122350 shares which comprise of more
Page 15 of 22
than 50% of their respective buy quantity and more than 35% of their
respective sell quantity. The BSE observed that the Noticees traded amongst
themselves for 135504 shares (8.65% of market volume) of which order for
trades in respect of 82872 shares (5.29% of market volume) were
synchronized i.e. buy and sell orders were placed within a minute from each
other. It was observed that out of 179 days the Noticees traded amongst
themselves for 43 days of which on 6 trading days trade amongst themselves
accounted for more than 30% of days volume.
25. As mentioned earlier, during the period of investigation, the price of scrip
moved from ` 22.50 to a high of ` 119.60 (431.55 % increase) through first
trades as well as intra-day price movements. The contribution of the Noticees
in establishing new higher price (NHP) during the investigation period is
tabulated below:
Sr. No.
Clients Name PAN Qty No. of Trades
% to total Market NHP trades
NHP (Rs.)
% to total Market NHP
1 Vishvas Securities Ltd AAACV2921N 6703 28 22.22% 20.2 19.84%
2 ISF Securities Ltd AAACI1667E 9441 14 11.11% 9.1 8.94%
Market 33089 126 100.00% 101.8 100.00%
It is observed that, ISF contributed to new price discovery including first trades
for a total ` 9.1 through 14 trades during the investigation period. Its
contribution to total market NHP trades was 11.11%.VSL contributed to new
price discovery including first trades for a total ` 20.2 through 28 trades during
the investigation period. The number of trades by VSL contributing to new
price discovery was 22.22% of the total market NHP trades.
26. The details of trades by Noticees which resulted into last traded price (LTP)
influence are tabulated in the tables below:
Name
All trades LTP Diff. <0 LTP Diff. > 0 LTP Diff. =0
Sum of LTP
diff
Sum of Quantity
No of trades
LTP impact
QTY traded
No of trades
LTP impact
QTY traded
No of trades
QTY traded
No of trade
s
Page 16 of 22
Table: LTP contribution
It is observed from the above table that trades of VSL and ISF, resulted in
LTP contribution of `114.35, and `66.45 respectively. They bought shares at
a price higher than last traded price in the scrip on 318 and 224 instances
respectively and bought shares price lower than last traded price on 308 and
179 instances respectively.
27. Comparison of LTP contribution of the Noticees to total market trades in the
scrip is tabulated below:
Table: LTP comparison with Market
As evident from the table, VSL contributed around 27% trades in both positive
and negative LTP trades; whereas ISF contributed around 19% trades in both
positive and negative LTP trades. They also contributed to around 10% trades
each which had no LTP impact.
Trades between Vishvas Securities and ISF Securities Ltd contributing to LTP:
Volume Total No.
of Trades
Positive LTP Negative LTP Net LTP
Sum No. of trades
Sum No. of trades
sum
Between Entities
135504 444 51.25 73 46.85 148 4.4
Market 1427128 5714 816.55 1160 770.6 1133 45.9
Vishvas Securities
Ltd 114.35 218667 996 -112.9 67391 308 227.25 53965 318 97311 370
ISF Securities
66.45 213206 777 -56.85 46390 179 123.3 49224 224 117592 374
Total Market
45.9 14271128 5714 -770.65 249177 1133 816.55 253676 1160 924275 3421
Clients Name Total No. of Trades
% to market
No. of Trades with
-ve LTP contribution
% to market
No. of Trades with
+ve LTP contribution
% to Market
No of trades
with zero LTP diff
% to Market
Vishvas Securities Ltd
996 17.43% 308 27.04% 318 27.41% 370 10.81%
ISF Securities Ltd
777 13.60% 179 18.61% 224 19.31% 374 10.93%
Total Market 5714 100.00% 1133 100% 1160 100% 3421 100%
Page 17 of 22
% to Market
9.49% 7.77% 6.28% 6.29% 6.08% 13.06% 9.59%
As seen from the above table, the total trades between the two suspected
entities, have contributed ` 51.25 in positive LTP difference trades and
` 46.85 in negative LTP difference trades. The number of trades executed
between the entities and contributing to positive/negative/zero LTP difference
are all less than 10% as compared to total marketwise trades in EIL in each
category.
28. Analysis of all the first trades (each day) during the investigation period is as
given below:
S. No
Clients Name Positive
LTP % positive
LTP to marketNo. of Trades
Net LTP
NHP %NHP to market
1 Vishvas
Securities Ltd 30.2 18.16% 26 22.6 15.75 18.43%
2 ISF Securities
Limited 23.4 14.07% 18 19.8 8.4 9.83%
Market Total 166.3 100% 139 61.65 85.45 100%
It can be seen from above table that VSL and ISF contributed in net of LTP
` 22.6 and ` 19.8 respectively through first trades in 26 and 18 trading
days respectively out of total 139 trading days during the investigation period.
29. Further, I find from the SCN that while dealing in the scrip of EIL, the Noticees
have executed trades which were fictitious in nature and amounted to self
trades i.e. trades wherein same client appeared on both buy and sell side of
the trades which created artificial volumes in the market and gave a false and
misleading appearance of trading in the scrip on the exchange. The details of
the self trades executed by the Noticees are as under:
Page 18 of 22
Client Name TRADE DATE
Self Trade Volume
Self Trade count
Day's Market volume
% of Self trades to day's market volume
Total buy volume of the Client
% of Self trades to total buy volume of the Client
Total Buy trade count of the Client
Total sell volume of the Client
% of Self trades to total sell volume of the Client
Total sell volume of the Client
VISHVAS SECURITIES
LTD
19‐05‐2009 500 1 8008 6.24% 519 96.34% 2 2228 22.44% 4
20‐05‐2009 700 1 23005 3.04% 6950 10.07% 22 6849 10.22% 27
22‐05‐2009 225 1 22351 1.01% 8259 2.72% 57 8259 2.72% 25
27‐05‐2009 2 2 72562 0.00% 8277 0.02% 17 8277 0.02% 24
28‐05‐2009 6 2 46690 0.01% 12912 0.05% 43 3726 0.16% 16
29‐05‐2009 2507 2 54691 4.58% 26510 9.46% 50 19438 12.90% 53
01‐06‐2009 1562 7 67300 2.32% 12413 12.58% 75 12413 12.58% 54
02‐06‐2009 5 1 49289 0.01% 10122 0.05% 36 9022 0.06% 36
03‐06‐2009 5 1 42117 0.01% 19687 0.03% 67 8616 0.06% 15
08‐06‐2009 49 1 20334 0.24% 5645 0.87% 26 9244 0.53% 34
17‐06‐2009 30 1 19924 0.15% 6045 0.50% 32 6487 0.46% 7
22‐06‐2009 10 1 8309 0.12% 391 2.56% 13 4975 0.20% 12
23‐06‐2009 10 1 7318 0.14% 1054 0.95% 14 5250 0.19% 15
06‐07‐2009 9 2 11717 0.08% 3550 0.25% 12 4149 0.22% 14
Total 5620 24 453615 122334 466 108933 276
ISF SECURITIES LIMITED
20‐05‐2009 1 1 23005 0.00% 5551 0.02% 30 5003 0.02% 23
25‐05‐2009 168 3 39410 0.43% 5352 3.14% 17 34226 0.49% 26
26‐05‐2009 903 1 63521 1.42% 29498 3.06% 74 19187 4.71% 50
27‐05‐2009 5763 3 72562 7.94% 27036 21.32% 50 35186 16.38% 39
01‐06‐2009 9 1 67300 0.01% 14258 0.06% 62 12450 0.07% 44
02‐06‐2009 664 2 49289 1.35% 20312 3.27% 56 17064 3.89% 46
22‐06‐2009 25 2 8309 0.30% 4786 0.52% 19 1786 1.40% 14
10‐07‐2009 1 1 20467 0.00% 2111 0.05% 12 5851 0.02% 13
Total 7534 14 343863 108904 320 130753 225
The above table reveals that the Noticees entered into self trades for 7534
shares and 5620 shares, respectively. VSL executed 24 self trades for
5620 shares on 14 trading days out of 179 trading days resulting out of a total
of 466 buy orders and 276 sell orders. Similarly, ISF entered into 14 self
trades on 8 trading days out of 179 trading days resulting out of a total of 320
buy orders and 225 sell orders.
30. ISF submitted in its reply to the SCN that merely on 8 days out of the 179
days that the buy/sell orders had gotten matched with their subsequent
sell/buy orders. The dealer had explained that he might have put reverse
orders of minimal quantity of 1 share to either check if the VSAT/ Internet
Page 19 of 22
connectivity is proper or whether the rates are getting updated in time or not.
ISF in its reply has taken one specific instance of trading on May 27, 2009 and
has submitted that it had instructed its dealer to put buy order of 41000 shares
at the rate of ` 29.85 (Order Value Rs. 1223850/-). However, the dealer had
put the orders after breaking the order and also while putting the orders in the
system, two buy orders for 3000 shares each were wrongly put as sell orders
in haste, which got matched unintentionally with its own buy orders. The said
error occurred when the market on that particular day was in last minutes of
trading and did not cause any harm to the investors. I agree with the
contention of ISF that the self trades executed by them are insignificant and
negligible vis-a-vis the total trading in the scrip. In my view, such few trades in
isolation may not lead to the conclusion that they are fraudulent and
manipulative trades but, given the above circumstances, facts of the instant
case and the nature of trades executed by the Noticees, the contention of ISF
that such trades are mere coincidences or for reasons stated above are not
acceptable.
31. From the foregoing and after considering the allegations as per the SCN,
submissions made by the Noticees and the material available on record, I find
that the scrip of EIL is thinly traded scrip under 5% price band with erratic
price discovery. Even in the absence of any major corporate announcements
or external factors, the Noticees by executing trades amongst themselves
created artificial volume and price increase in the scrip. The Noticees by
creating false appearance of trading in the scrip of EIL induced gullible
investors to trade in the scrip and managed to offload large quantities of
shares held by them at artificially higher prices. It is therefore established
beyond doubt that the Noticees have violated Regulation 3(a) and (d), 4(1),
4(2)(a) and (g) of the SEBI PFUTP Regulations. Further, ISF being a SEBI
registered stock broker by indulging in fraudulent and manipulative trades has
also violated Clauses A(1), (3), (4) and (5) of the Code of Conduct as
specified under Schedule II of Regulation 7 of the SEBI Broker Regulations
warranting imposition of monetary penalty under Section 15HA and 15HB of
the SEBI Act, 1992.
Page 20 of 22
.
32. The provisions of Sections 15HA and 15HB of the SEBI Act, reads as under:
Penalty for fraudulent and unfair trade practices.
15HA. If any person indulges in fraudulent and unfair trade practices relating to
securities, he shall be liable to a penalty of twenty-five crore rupees or three times the
amount of profits made out of such practices, whichever is higher.
15HB. Penalty for contravention where no separate penalty has been provided
“Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board there under for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees”.
33. While imposing monetary penalty it is obligatory to consider the factors
stipulated in Section 15J of the SEBI Act which reads as under:
15J - Factors to be taken into account by the adjudicating officer
While adjudging quantum of penalty under section 15-I, the adjudicating officer shall
have due regard to the following factors, namely:-
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the
default;
(c) the repetitive nature of the default.
34. I observe that from the material available on record it is difficult to quantify any
gain or unfair advantage accrued to the Noticees or the extent of loss suffered
by the investors as a result of the default of the Noticee or to ascertain
whether the defaults are repetitive in nature. It will suffice to state that keeping
in mind the practices indulged in by the Noticees, gains per se were made by
them in that they traded in the scrip in a manner meant to create artificial
volumes and liquidity which is an important criterion, apart from price, capable
of misleading the investors while making an investment decision. In fact,
liquidity/volumes in particular scrip raise the issue of ‘demand’ in the securities
market. The greater the liquidity, the higher is the investors’ attraction towards
Page 21 of 22
investing in that scrip. Hence, anyone could have been carried away by the
unusual fluctuations in the volumes and induced into investing in the said
scrip. Besides, this kind of activity seriously affects the normal price discovery
mechanism of the securities market. People who indulge in manipulative,
fraudulent and deceptive transactions, or abet the carrying out of such
transactions which are fraudulent and deceptive, should be suitably penalized
for the said acts of omissions and commissions.
35. The Noticees being SEBI registered stock brokers created artificial volumes,
false appearance of trading and generated investor interest in the otherwise
thinly traded scrip of EIL. The Noticees offloaded their entire shareholding at
artificially rigged up prices to gullible investors and after suspension of trading
of the scrip by the BSE they do not have an exit opportunity. Operators like
the Noticees often take small and unsuspecting investors up the garden path
leaving them high and dry. The stocks zoom for no rhyme or reason and then
crash dramatically. These are one of the reasons why the retail investors shy
away from the securities market. It is therefore of paramount importance for
the regulator to keep up the market integrity, instill investor confidence and
protect the interests of the investors by punishing such offenders suitably.
Order:
36. In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under Section 15-I (2) of
the SEBI Act read with Rule 5 of the Adjudication Rules, I hereby impose a
penalty of � 10,00,000 (Rupees Ten Lakhs Only) under Section 15HA of the
Act and ` 1,00,000 (Rupees One Lakh Only) under Section 15HB of the Act
on ISF Securities Limited (ISF) and ` 10,00,000 (Rupees Ten Lakhs Only)
under Section 15HA of the Act on Vishwas Securities Limited (VSL) thus, a
total of ` 21,00,000 (Rupees Twenty One Lakhs only) on the Noticees. In my
view, the penalty is commensurate with the default committed by the
Noticees.
Page 22 of 22
37. The penalty amount as mentioned above shall be paid by the Noticees
through a duly crossed demand draft drawn in favour of “SEBI – Penalties
Remittable to Government of India” and payable at Mumbai, within 45 days of
receipt of this order. The said demand draft should be forwarded to the
Division Chief, IVD-ID-10, Securities and Exchange Board of India, Plot No.
C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
38. In terms of the Rule 6 of the Adjudication Rules, copies of this order are sent
to the Noticees and also to Securities and Exchange Board of India.
Date: March 12, 2013 P K KURIACHEN
Place: Mumbai ADJUDICATING OFFICER