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Order Against Anvee Share Brokers Pvt Ltd

Aug 31, 2004
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Orders : Orders of Chairman/Members

 MO/73/IVD/08/04

 

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER REGULATION 13 (4) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002.

 

AGAINST M/S ANVEE SHARE BROKERS PVT LTD, MEMBER, DELHI STOCK EXCHANGE, IN THE MATTER OF VATSA WORLD LTD.

 

BACKGROUND

     
  1. Vatsa World Limited (hereinafter referred to as "VWL") was incorporated as a private company named as Ongoing Advertising and Packing Pvt Ltd, which was converted into a public company on 20th February 1996 and on 19th June 2001 the name was changed to VWL. Subsequently VWL acquired the business of Little Kingdom Edutech Ltd, an educational technology based company and adopted its name.

    2.  

  2. The shares of VWL are listed for trading on the Delhi Stock Exchange (hereinafter referred to as "DSE"). DSE, on observing a significant variation in the price of scrip of VWL, conducted an investigation and submitted a report to the Securities and Exchange Board of India (hereinafter referred to as "the SEBI"). DSE had inter-alia made the following observations:

 

  1.  
    1. The price of the scrip increased from Rs.12.50 on April 9, 2001 to Rs.43.05 on July 10, 2001.

      2.  

    2. The increase in price was not accompanied by a corresponding increase in trading volume.

      3.  

    3. The entire trading was concentrated amongst 8 members of the exchange.

      4.  

    4. Most of the trades were squared off and there was only one instance of delivery during the entire trading period spread over 15 settlements.

      5.  

    5. The scrip of VWL was traded for 33 days with 26,700 shares being traded i.e an average of 810 shares per day.

      6.  

Some of the members or their clients were suspected to be related to the company. Hence, DSE suspected possible price manipulation and insider trading by the company, its promoters or associates.

 

    3. Based on the investigation report of DSE, SEBI had ordered an investigation in May 2002 to look into the possible irregularities in the trading of the scrip of VWL. It was observed that M/s. Venkateshwara Trading co (hereinafter referred to as "VTC") had dealt in the scrip at prices ranging from Rs. 10 to Rs. 29, through M/s. Anvee Share Brokers Pvt. Ltd. (hereinafter referred to as "the said broker").

     

    4. Thus, it was alleged that the said broker had violated clause A (2-5) of the Code of Conduct, as specified in the Schedule II under regulation 7 of Securities and Exchange Board of India (Stockbrokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as "the Broker Regulations").

 

 ENQUIRY PROCEEDINGS

 

5. In view of the above, SEBI, vide order dated 24th July 2003, appointed an Enquiry Officer (hereinafter referred to as the "Enquiry Officer") under Regulation 5 (1) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as "the Regulations") to enquire into possible violations, inter alia, of the Brokers Regulations.

 

6. As required under regulation 6 of the Regulations, Enquiry Officer issued a show cause notice dated 11th September 2003 to the Member to show cause as to why action should not be initiated for violations mentioned therein.

 

7. The said broker, vide letter dated 3rd October, 2003, replied to the show cause notice, inter-alia submitting as follows:

 

a. VTC had been its client since 1995, was financially sound and as such never showed any signs of attempting to manipulate capital market to make profits.

b. VTC ensured and traded well within its financial capabilities.

c. VTC had suffered a not so insignificant loss and subsequent to the loss did not show any inclination to make any profit even when the price of the scrip started to rise.

d. They did not have any reason to suspect the intentions of VTC.

e. VTC had provided a certificate to the effect that it was not in any way related to VWL, its directors or promoters.

  1.  

       

    1. The Enquiry Officer, after considering the submissions of the said broker, submitted his report dated February 13, 2004, recommending a minor penalty of warning to the Member.

      2.  

SHOW CAUSE NOTICE AND HEARING

 

9. A show cause notice dated 20th February 2004 was issued to the said broker, communicating the findings of Enquiry Officer and advising them to show cause as to why the recommendation of Enquiry Officer should not be accepted. Member did not respond to the notice.

 

CONSIDERATION OF ISSUES

 

 

10. I have carefully considered the facts of the case and the findings of Enquiry Officer. I have observed that the said broker did not respond to the show cause notice dated 20th February 2004. In view this, the submissions made by the said broker in response to show cause notice served by Enquiry Officer, submissions made during personal hearing before Enquiry Officer and written submissions made pursuant to the hearing are taken as final. The hearing before me has been dispensed with in this case as the same was not considered necessary in the light of the facts and circumstances of the case. My findings with respect to the allegations against the member are as under.

11. I find that during the period from April 9, 2001 to July 10, 2001, the scrip was traded only on 33 days and the total number of shares traded was only 26700. The average traded volume per day works out to about 810 shares. In many of the trading days there were only one or two trades in the scrip. Thus, it is clear that there was very little trading interest in the scrip.

12. During the said period, the price of the scrip increased from Rs. 12.50 on April 09, 2001 to Rs. 43/-on July 10, 2001. The increase in price was not accompanied by a corresponding increase in trading volume and the entire trading was concentrated amongst 8 members of the exchange. Most of the trades were squared off and there was only one instance of delivery during the entire trading period spread over 15 settlements.

13. I have observed that the transactions of VTC, client of the said broker, were as follows:

 

  Sr. No.     Settlement No. / Date     Client Name     Buy Quantity     Price     Sell Quantity     Price  

1.

  

25.05.01

  

VTC

  

500

  

10.00

  

Nil

  

Nil

  

2.

  

28.05.01

  

VTC

  

Nil

  

Nil

  

500

  

10.55

  

3.

  

26.06.01

  

VTC

  

Nil

  

Nil

  

1000

  

23.25

  

4.

  

28.06.01

  

VTC

  

Nil

  

Nil

  

1000

  

27.05

  

5.

  

29.06.01

  

VTC

  

2000

  

29.00

  

Nil

  

Nil

  
      TOTAL         2500         2500      

 

Thus, the said broker had executed purchase and sale of 2,500 shares from 25.05.01 to 29.06.01, on behalf of VTC. This amounted to 19% of the gross quantity traded on the exchange during the said period.

14. I have also noted that the said broker had traded in illiquid scrip. While trading in illiquid scrip, the said broker should have exercised due skill and care while acting on behalf of its client, as trading in illiquid scrip may induce innocent investors into trading in the scrip. The trading pattern of the client who had traded in illiquid scrip, without taking or giving delivery, should have alerted the said broker and the broker should have been more careful while dealing in the shares of VML for the client. This act of the said broker is in violation of clauses A (2) to A(5) of Code of Conduct of Broker Regulations.

15. However, I have also observed that :

i. The said broker has executed trades only for 2500 shares.

ii. No connection has been established between the said broker and/or VTC, with VWL.

iii. The said broker had collected margins from VTC.

iv. The said broker had indulged in only 5 transactions, over a one month period.

 

I have considered these factors while arriving at the quantum of penalty.

 

ORDER

 

  1. Therefore, in exercise of 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 warning on M/s. Anvee Share Brokers Pvt Ltd and direct it to be more diligent in complying with the SEBI Act, 1992 and the Rules and Regulations framed there under. I also direct the said broker to note that any instances of violations or non-compliance of the Act, Rules and Regulations in future shall be dealt with more stringently.

 

  T.M.NAGARAJAN

Date: August 31, 2004

 WHOLE TIME MEMBER
Place:MUMBAI  SECURITIES AND EXCHANGE BOARD OF INDIA