SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI
ORDER
AGAINST M/S. MALAR SHARE SHOPPE LIMITED, SUB-BROKER OF M/S. RAJRATAN R MOHTA, MEMBER, THE STOCK EXCHANGE, MUMBAI (SEBI REGISTRATION NO. INS 010117039) UNDER REGULATION 13(4) AND 13(6) OF SEBI (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002.
Whereas, an investigation was conducted into the unusual price movement in the scrip of Kreb Biochemicals Limited (hereinafter referred to as KBL) during 1998 and it was brought out that the price of the scrip went up from Rs. 81/- per share in March 1998 to a high of Rs. 304/- per share on 02.06.98, and,
whereas, three entities CDP Fincap, Damayanti Finvest and Rituja Finvest had enrolled as common clients to some members of The Stock Exchange, Mumbai (hereinafter referred to as BSE) and The National Stock Exchange (hereinafter referred to as NSE) and had traded in the scrip of KBL. The said three entities were related and were acting in concert with one another. Their trading pattern predominantly moved the scrip price artificially during the period of investigation, and,
whereas, Rituja Finvest had transacted in the scrip of KBL through Malar Share Shoppe, a sub-broker of M/s. Rajratan R Mohta, Member, The Stock Exchange, Mumbai (hereinafter referred to as ‘the sub-broker’) and,
whereas, an enquiry officer was appointed vide an order dated 29.05.03 to inquire into the role of the sub-broker for his dealings in the scrip of KBL for its client Rituja Finvest and to inquire into the violation of the provisions of Clause A (2) of the Code of Conduct for sub-brokers prescribed in Schedule II of Regulation 7 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, and,
whereas, the enquiry officer after inquiring into the violations of the sub-broker had submitted a report dated 08.06.04, recommending that a warning be issued to the sub-broker, since the allegations made against the sub-broker have not been proved to an extent that, the sub-broker deserves to be punished by way of suspension or cancellation, and,
whereas, a show cause notice dated 14.06.04 was issued to the sub-broker annexing a copy of the enquiry report asking it to reply within 15 days or else it would be presumed that the sub-broker had no explanation to offer and SEBI would be free to take such action as it deems fit, and,
whereas, a reply dated 30.06.04 was received from the sub-broker stating that the view of the enquiry officer should be taken into account and his recommendation should be implemented, and,
whereas, the issue for consideration is whether the sub-broker is guilty of violating the provisions of the provisions of Clause A (2) of the Code of Conduct for Stock Brokers prescribed in Schedule II of Regulation 7 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, by virtue of his carrying out the deals for his client Rituja Finvest.
I have considered the enquiry report dated 08.06.04 and the reply of the sub-broker to the findings in the enquiry report.
I have noted that certificate of registration of the sub-broker was suspended for a period of eighteen months for executing transactions similar to that of KBL in the scrip of BPL Industries, Videocon, Sterlite etc., as explained in the table below:
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KBL
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BPL
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Name of the Broker
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Malar Share Shoppe Ltd.
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Malar Share Shoppe Ltd.
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Investigation period
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March 1998 to June 1998
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April - May 1998
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Basis of Investigation
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Apprehension of sustained price rise coupled with concerted buying by a few clients
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Apprehension of sustained price rise coupled with concerted buying by a few clients
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Client of the Broker
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Rituja Finvest
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Rituja Finvest
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Allegation against the client
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Indulged in price manipulation
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Indulged in price manipulation
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Alleged violation by the client
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Provisions of FUTP Regulations
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Provisions of FUTP Regulations
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Allegation against the broker
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Failed to exercise a proper skill, care and diligence for having dealt with CDP who had a ulterior motive
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Failed to exercise a proper skill, care and diligence for having dealt with CDP who had a ulterior motive
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Alleged violation
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Code of conduct
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Code of conduct & FUTP Regulations
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I have also taken into consideration the fact that the enquiry officer has found no relationship, direct or indirect, between the entities involved in the manipulation and the sub-broker.
The enquiry officer has recommended a penalty of warning to the sub-broker. However, enquiry officer stated that the sub-broker has not violated provisions of Clause A(2) of the Code of Conduct for Stock Brokers as mentioned under Schedule II of SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992. I, therefore, do not agree with the recommendation of the enquiry officer that a warning needs to be issued to the member for the transactions in the scrip of KBL for its clients Rituja Finvest.
Now, therefore, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulations 13(4) and 13(6) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby direct that no action be taken against Malar Share Shoppe, a sub-broker (SEBI Registration No. INS 010117039) of M/s. Rajratan R Mohta, member, The Stock Exchange, Mumbai. However, I direct the sub-broker to remain cautious and careful in future in the conduct of its business.
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Place: Mumbai
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MADHUKAR
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Date: 30.12.05
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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