BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM : V. K. CHOPRA, WHOLE TIME MEMBER
Against M/s BLB Ltd., Broker, Calcutta Stock Exchange
in the scrip of Ranbaxy Laboratories Limited
Order No.WTM/VKC/ID6/34/07
DATE OF HEARING 13.10.2006
APPEARANCES
FOR COMPANIES/ BROKERS:
- Shri. Vinay Chauhan, Advocate
- Shri Abhay Sharma, Advocate
- Shri. B. R. Bagri, Chairman, BLB Ltd.
- Shri Vikram Rathi, Executive Director, BLB Ltd.
FOR SEBI
- Shri. P. K. Nagpal, CGM, SEBI
- Mrs Barnali Mukherjee, DGM, SEBI
ORDER
Under Regulation 13(4) SEBI (Procedure for Holding Enquiry
by Enquiry Officer and Imposing Penalty) Regulations, 2002
1.0 BACKGROUND
1.1 Securities and Exchange Board of India (hereinafter referred to in short as “the Board”) had ordered an investigation into the dealings of M/s BLB Shares and Financial Services Ltd., Brokers of Calcutta Stock Exchange (CSE) (SEBI Registration no. INB030548739 - surrendered the same to CSE), National Stock Exchange (NSE) (SEBI Registration no. INB230642831) and Stock Exchange, Mumbai (BSE) (SEBI Registration no. INB010642837) in the shares of Ranbaxy Laboratories Ltd. (hereinafter referred to in short as “Ranbaxy”).
1.2 The price of Ranbaxy scrip moved up significantly from Rs.270/- in January 1999 to about Rs.1200/- in October 1999 accompanied with significant increase in volumes. The Board initiated preliminary investigation into the scrip in August 1999 considering the 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).
1.3 The Board after considering the Investigation Report, appointed an Enquiry Officer vide Order dated November 27, 2002 to enquire into the violations allegedly committed by the Broker under 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 in short as “PFUTP Regulations”) Regulation 7 of the SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 read with clause A(3) and (4) of Schedule II of the Code of Conduct for Stock Brokers issued under SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as “Stock Brokers Regulations”) and Rules, Regulations and Bye-laws of Stock Exchanges.
1.4 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 in short as “Enquiry Regulations”) submitted a report dated December 23, 2003 wherein he observed that the Broker had 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 four months.
2.0 SHOW CAUSE NOTICE
2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated April 28, 2004 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 June 05, 2004.
3.0 REPLY OF THE BROKER TO THE SHOW CAUSE NOTICE
3.1 The Broker in its reply pointed out as follows:
“…… the total number being a mere 18 out of our around 60,000 at CSE and 1,70,000 overall, and a volume of 3,15,300 shares out of a total volume of over 18,00,00,000 (18 crore) shares at the CSE and over 80,00,00,000 (80 crore) shares in the overall market, spread over a long period of 300 days from 01.01.1999 to 31.10.1999.
…… all our said 18 trades, were done in the normal course of our business, and very importantly, through the Price & Order Matching mechanism of the Stock Exchange at the prevailing market prices, within the applicable laws, and making all the compliances related therewith and without any ulterior motives and ill effects corroborating the same.
……. definite presence of biases against us probably for reasons that the Enquiry Officer’s view was prejudiced by the 2001 market crash, as is evident from the references about KP and his associates, on the basis of just 1 order of 5,000 shares out of our 60,000 amounting to 1,70,00,000 shares, which appears to have the same rate, time and quantity as that of some other Broker who had dealt with and for these entities.
The Investigation was not conducted against us, and our name got included incidentally because our total orders in the scrip were above 1,00,000 shares (orders above 5000 shares considered) during the 300 days period. Had the total of our selected transactions been even 99,999 shares, our name would not have been there.
Our name does not find a mention anywhere in the said extracts, except for in the table of entities, who had total orders of above 1,00,000 shares (orders above 5000 shares considered) during the 10 months period.
The scrip of RLL, belonging to the coveted pharma sector, has been one of the most liquid scrips.
This is conspicuous from the overall volumes in the scrip at the CSE being over 18 crore shares and in the overall market being over 80 crore shares
As against these enormous volumes in the given scrip, the said 18 orders were extremely negligible, as is evident from the following table:
|
Volume of Transactions under reference
(A)
|
Volume at CSE (approx.)
(B)
|
Volume in the Market (approx.)
(C)
|
A as % of B
|
A as % of C
|
|
3,15,300
|
18 crores
|
80 crores
|
0.17%
|
0.04%
|
There is no pattern in the in-putting of our said 18 orders, vis a vis date, time, and each of them are too independent and unrelated for being considered together while talking of having an effect on the market. Therefore, each of the said 18 transactions would have to be taken separately and judged individually.”
4.0 HEARING
4.1 The Broker in its reply requested for a personal hearing in the matter. Accordingly, the Broker was advised to attend the personal hearing before me at SEBI’s Head Office at Mumbai. Shri. B R Bagri, Chairman and Shri Vikram Rathi, Executive Director of the Broker attended the hearing on October 13, 2006 alongwith their advocates, Shri Vinay Chavan and Shri Abhay Sharma. They have also requested time for filing their written submission which was granted. The Broker filed the written submission dated November 06, 2006 wherein they reiterated the same contentions as stated in the reply to the show cause notice and the same was also considered in deciding this matter.
5.0 CONSIDERATION OF ISSUES & FINDINGS
5.1 I have carefully examined the Enquiry Report, Show Cause Notice, Reply of the Broker and submissions made at the time of hearing and I observe as under.
5.2 The scrip of Ranbaxy Laboratories Ltd. (hereinafter referred to in short 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 and it continued to move upward during February – March 1999 and reached Rs.650/- by the end of March 1999. The price of the scrip thereafter moved to Rs.700/- during May 1999 and came down to Rs.600/- during June 1999. The price subsequently 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 its price increased to Rs.1200/- during October 1999. Effectively the price of the scrip moved up from Rs.267 on January 01, 1999 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.
5.3 Further, I observe from the Annexure to the Enquiry Report that the Broker had carried out 18 instances of synchronization of trades. The charge levelled against the Broker is on the basis of these trades. A synchronised trade is a kind of transaction where the seller and buyer execute the trade for almost same quantity and price with orders placed at substantially the same time. A synchronised deal is per se not illegal. On the other hand, a synchronised trade done with fraudulent or deceptive intention to create misleading appearance of trading or to manipulate the price and/or volume of the scrip by tampering the price discovery mechanism of the stock and to derive undue gain out of it is, without doubt a serious offence.
5.4 Hence, the issue to be decided in this case is whether the Broker has carried out any such trades and to take a decision as to whether the penalty recommended by the Enquiry Officer against the Broker is warranted or not. In order to decide the said issue, I felt it necessary to analyse the details of synchronised trades executed by the Broker given hereunder:
|
Buy Mem Name
|
Trade date
|
Buy Order time
|
Buy order Qty
|
Buy order rate
|
Sell Mem Name
|
Sell Order time
|
Sell Order Qty
|
Sell order rate
|
Time Difference
|
Price difference
|
|
B L B SHARE & FINANCIAL SERVIC
|
5/5/1999
|
12:02:07
|
25000
|
668.50
|
J. V. S. SECURITIES PVT. LTD.
|
12:02:07
|
25000
|
668.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/24/1999
|
14:26:12
|
15000
|
645.00
|
B L B SHARE & FINANCIAL SERVIC
|
14:26:12
|
15000
|
645.00
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
7/5/1999
|
14:08:31
|
15000
|
679.80
|
SHANKAR LAL CHOKHANY
|
14:08:31
|
15000
|
679.80
|
0:00:00
|
0.00
|
|
SANJAY KHEMANI
|
8/16/1999
|
15:12:59
|
13500
|
981.50
|
B L B SHARE & FINANCIAL SERVIC
|
15:12:59
|
13500
|
981.50
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
8/18/1999
|
11:16:50
|
25000
|
1003.00
|
B L B SHARE & FINANCIAL SERVIC
|
11:16:50
|
25000
|
1003.00
|
0:00:00
|
0.00
|
|
RAJENDRA KUMAR CHOKHANY
|
8/24/1999
|
14:27:28
|
10000
|
1032.80
|
B L B SHARE & FINANCIAL SERVIC
|
14:27:29
|
10000
|
1032.80
|
0:00:01
|
0.00
|
|
Bv SHANKAR LAL CHOKHANY
|
9/14/1999
|
12:05:23
|
15500
|
1075.60
|
B L B SHARE & FINANCIAL SERVIC
|
12:05:24
|
15500
|
1075.60
|
0:00:01
|
0.00
|
|
J. V. S. SECURITIES PVT. LTD.
|
9/14/1999
|
13:02:54
|
35000
|
1064.50
|
B L B SHARE & FINANCIAL SERVIC
|
13:02:54
|
35000
|
1064.50
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
9/24/1999
|
15:21:34
|
19000
|
1068.50
|
J. V. S. SECURITIES PVT. LTD.
|
15:21:34
|
19000
|
1068.50
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
9/27/1999
|
14:43:58
|
10000
|
1064.20
|
KRISHNA KUMAR DAGA
|
14:43:58
|
10000
|
1064.20
|
0:00:00
|
0.00
|
|
LNS CAPITAL MARKET PVT. LTD.
|
9/27/1999
|
12:35:48
|
10800
|
1051.80
|
B L B SHARE & FINANCIAL SERVIC
|
12:35:48
|
10800
|
1051.80
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
9/28/1999
|
15:01:34
|
40000
|
1067.00
|
KANODIA STOCK BROKING (P) LTD
|
15:01:34
|
40000
|
1067.00
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
9/28/1999
|
15:45:28
|
10000
|
1065.50
|
J. V. S. SECURITIES PVT. LTD.
|
15:45:28
|
10000
|
1065.50
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
10/8/1999
|
13:26:21
|
5000
|
1153.60
|
DINESH KUMAR SINGHANIA & CO.
|
13:26:24
|
5000
|
1153.60
|
0:00:03
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
10/12/1999
|
12:13:11
|
10000
|
1159.80
|
LALIT & CO.
|
12:13:11
|
10000
|
1159.80
|
0:00:00
|
0.00
|
|
J. V. S. SECURITIES PVT. LTD.
|
10/14/1999
|
14:52:47
|
30000
|
1214.40
|
B L B SHARE & FINANCIAL SERVIC
|
14:52:46
|
30000
|
1214.40
|
0:00:01
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
10/15/1999
|
14:48:47
|
11500
|
1136.80
|
KRISHNA KUMAR DAGA
|
14:48:47
|
11500
|
1136.80
|
0:00:00
|
0.00
|
|
B L B SHARE & FINANCIAL SERVIC
|
10/26/1999
|
14:59:59
|
15000
|
995.30
|
KANODIA STOCK BROKING (P) LTD
|
14:59:59
|
15000
|
995.30
|
0:00:00
|
0.00
|
5.5 From the above table it is clear that the Broker had executed 18 synchronized trades in the shares of Ranbaxy and in all these cases, order quantity and price are same with counter party order quantity and price. It is observed that 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 gap of a second. I also find that the percentage of the matching transactions of the member to his total transactions in the shares of Ranbaxy during the relevant days under consideration is 1.5%.
5.6 According to Enquiry Officer, an order of 5,000 Ranbaxy shares out of total 3,15,300 shares (i.e.1.58%) of the Broker were matched with another Broker Ashok Kumar Poddar, who had dealt for entities connected or associated with Ketan Parekh group. Ashok Kumar Poddar had been declared defaulter by CSE. Subsequently, SEBI cancelled their registration and published the same vide Press Release dated July 30, 2002 and this was noticed to be subsequent to the transaction in issue. It is observed that the Broker executed only one trade with Ashok Kumar Poddar and that too within a period of almost six months and this could be a mere coincidence. Further, there was no other evidence supporting their relationship with Ashok Kumar Poddar or KP Group.
5.7 Now, the issue to be decided in this matter is as to whether the Broker has carried out impugned trades which would ultimately affect the price discovery and artificial rise of price and volume. I am of the view that 18 synchronized trades executed with the gap of number of days between trades spread over a period of almost six months may not affect the price discovery mechanism of the Exchange. I observe that the counterparty Brokers to these trades are different. Further, the total transactions of the Broker in the scrip of Ranbaxy which matched during the period under consideration were only 1.5%. I note one of the submission of the Broker that the impugned trades were mere 18 out of their 60,000 trades at CSE and 1,70,000 trades at other exchanges. They also submitted that the impugned volume in Ranbaxy was 3,15,300 shares out of their total volume of over 18,00,00,000 (18 crore) shares at the CSE and over 80,00,00,000 (80 crore) shares in the overall market, spread over a long period of 300 days from January 01, 1999 to October 31, 1999. Hence their of 3,15,300 shares during the investigation period can be treated as miniscule compared to the huge market that this scrip commands. In view of this, it would appear that these trades do not establish any pattern which would suggest any intended manipulation. In the absence of any other adverse finding in the Enquiry Report regarding specific violation of code of conduct as stipulated in the Stock Brokers Regulation, I am of the view that the above charge is also not tenable against the Broker.
5.8 It is evident from the above details that 1.5% of the transactions of the Broker matched while remaining 98.5% transactions were done with the other Brokers in the market where no matching was noticed. In view of this, no clear cut conclusion as to violation said to have been committed by the Broker, can be drawn. Therefore, I am inclined to grant benefit of doubt to the Broker.
5.9 Apart from the above, I have noted that the Broker is a public limited company with many shareholders and an employee base of 400. They have also submitted that they are having an impeccable track record over a long period of 40 years. Considering this and all other facts and circumstances of the case, I am of the view that this is not a fit case to impose any penalty.
6.0 ORDER
6.1 Having regard to all aspects of this case, I in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 read with Regulation 13(4) of the said Regulations, hereby dispose of the show cause notice issued to the Broker without imposing any penalty or direction in terms of Regulation 13(4) of SEBI Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 on the Broker, M/s BLB Ltd.
|
Mumbai
|
V. K. CHOPRA
|
|
January 11, 2007
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WHOLE TIME MEMBER
|
|
|
SECURITIES AND EXCHANGE BOARD OF INDIA
|