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Order in the matter of M/s Hem Securities Ltd

Jul 25, 2007
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Orders : Orders of Chairman/Members

WTM/TCN/ 41 / IVD/07 / 07

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: Dr. T.C.NAIR, WHOLE TIME MEMBER

 

IN THE MATTER OF M/s HEM SECURITIES LTD. MEMBER,

 BOMBAY STOCK EXCHANGE LIMITED (INB011069953)

 

ORDER

(Under Regulation 13(4) of SEBI (Procedure For Holding Enquiry By Enquiry Officer and Imposing Penalty) Regulations, 2002 against M/s Hem Securities Ltd.

 

1.0             Background

 

1.1             SEBI had conducted investigations into the alleged price manipulation in the scrip of DSQ Biotech Ltd. (hereinafter referred to as “DSQ”) for the period at NSE from September 2000 to January 2001 and at the BSE from July 2000 to November 2000 (hereinafter referred to as the “investigation period”).

1.2             Investigation revealed that DSQB had increased the share capital by making a preferential issue in 2000. It was observed that prior to and after the period of the issue i.e. between December 1999 to January 2001 abnormal activity in the scrip was noticed at the NSE and BSE accompanied by a large number of structured deals wherein the buy and sell clients were related entities.

1.3             The volumes in the scrip during the investigation period were attributed to the synchronized trades and fictitious trades were executed by the entities through accommodating brokers. Further it was seen that trades were also used to avail of the finance from the system.  It was alleged that the brokers connived with the DSQ Group to trade and offload unlisted preferential shares into the market.

1.4             M/s Hem Securities Ltd. (hereinafter referred to as “the broker”) Member of the Bombay Stock Exchange Ltd. (hereinafter referred to as “BSE”), registered with SEBI as a stock broker under Section 12 of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “the SEBI Act”) was alleged to have violated the provisions of Regulation 4 (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred as 'FUTP') and Clauses A (1) to (5) of Schedule II read with Regulation 7 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as the ‘Stock Broker Regulations’).

2.2             In view of the findings of the investigation, an Enquiry Officer was appointed, vide Order dated July 07, 2005 to enquire into the alleged violations made by the broker. On completion of enquiry, the Enquiry Officer submitted his report dated November 28, 2006 recommending no penalty on the broker.

2.3             In said enquiry report, the enquiry officer has found that the client on behalf of whom the broker dealt and who was a major buyer had only purchased the shares through the broker. The broker submitted that as it was only the buying broker, the charge of synchronization and creating artificial volume through circular trading, is improbable. The Enquiry Officer observed that although the trades may be synchronized by the clients, the charge of circular trading can not be levied against the broker as it was only buying and the client was taking delivery of shares. It was however, possible to levy this charge if it was proved that there was a nexus of the broker with the client and the counter party selling broker. There was nothing on record to prove the same.

 

2.4             After taking into consideration the facts and circumstances of the case and the findings of the Enquiry Officer mentioned in the report and the relevant provisions of law governing the case, I have come to the conclusion that this matter is not a fit case to levy any penalty as the charges against Hem Securities Ltd. have not been established with reasonably good evidence. Further, from legal point of view, I feel that there is no evidence on record to prove that Hem Securities failed to exercise due care, skill and diligence in the conduct of its business or has indulged into manipulative role with its clients.

 

2.5             Having regard to what has been stated above, I find no reason to differ with the recommendations of the Enquiry Officer. Accordingly, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby dispose of the enquiry proceedings as above against Hem Securities Ltd.

 

Date: 25.07.2007

T. C. NAIR

Place: Mumbai

WHOLE TIME MEMBER

 

SECURITIES AND EXCHANGE BOARD OF INDIA