BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: V. K CHOPRA, WHOLE TIME MEMBER
Against M/s S. P. Rakhecha & Co (Shanti Prasad Rakhecha), Broker – Calcutta
Stock Exchange in the scrip of Ranbaxy Laboratories Limited
DATE OF HEARING: 13.09.2006
APPEARANCES
FOR COMPANIES/ BROKERS:
- Shri. Debendra Kumar Jain
FOR SEBI
- Mrs Barnali Mukherjee, DGM, SEBI
ORDER
Under Regulation 13(4) of 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 affairs relating to buying, selling and dealings of several entities including M/s S. P. Rakhecha & Co, (Shanti Prasad Rakhecha) in the shares of Ranbaxy Laboratories Ltd (hereinafter referred to in short as “Ranbaxy”) on observing sudden spurt in price of the scrip of Ranbaxy from Rs.270/- in January 1999 to about Rs.1200/- in October 1999 accompanied with significant increase in volumes particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE). M/s S. P. Rakhecha & Co. is a broker of Calcutta Stock Exchange (CSE) (hereinafter referred to as “the Broker”) with SEBI Registration no. INB031032718.
1.2 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 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 read with clause A(3), A(4) and A(5) of Code of Conduct as specified in Schedule II of 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.
1.3 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 as ‘the Enquiry Regulations’), submitted a report dated October 31, 2003 whereby he observed that the broker 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 SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 and Regulation 4(b) & (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995. 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 December 05, 2003 was issued to broker, along with a copy of the said Enquiry Report, advising him to show cause as to why the action, as recommended by the Enquiry Officer, should not be imposed on him. The broker submitted its reply to the said show cause notice, vide letter dated December 10, 2003.
3.0 REPLY OF THE BROKER TO THE SHOW CAUSE NOTICE.
3.1 The Broker vide aforesaid reply dated December 10, 2003 stated that he will not do any such type of trade in future and requested to forgive him and pleaded for a minimum penalty.
4.0 HEARING
4.1 Though the Broker admitted the findings of Enquiry Officer as stated above, an opportunity of personal hearing was granted and he was advised to attend the personal hearing before me at SEBI’s Eastern Regional Office at Calcutta on September 13, 2006. The Authorized Representative Shri Debendra Kumar Jain attended the hearing. Therefore, I am proceeding in the matter on the basis of the submissions of the broker and the material before me.
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.
5.2 I note from the Enquiry Report that the scrip of Ranbaxy Laboratories Ltd. (hereinafter referred 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. Subsequently, price continued to move upward during February – March 1999 and reached Rs.650/- by end of March 1999. Further, the price of the scrip moved to Rs.700/- during May 1999 and came down to Rs.600/- during June 1999. The price subsequently moved upwards and 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 increased to Rs.1200/- during October 1999. Effectively, the price of the scrip moved up from Rs.267/- on 01.01.99 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. The price of the scrip of Ranbaxy had moved significantly during the period from Rs.270/-in January 1999 to about Rs.1200/- in October 1999. The price rise in the scrip was accompanied by significant increase in volumes.
5.3 During the course of hearing, the representative of the broker reiterated the same stand before me that the Broker had taken in their reply dated December 10, 2003. Apart from that he submitted that they were mostly doing jobbing transaction and as such it is not correct to say that synchronized matched transactions were executed by them.
5.4 I note that the Enquiry Officer has arrived at a conclusion in his enquiry report that the broker carried out 21 instances of synchronization of trades with a view to create misleading appearance of trading which tampers with price discovery mechanism of stock exchange .
5.5 I find that the entire charge levelled against the broker is on the basis of the aforesaid synchronized trades. The synchronized trade is a kind of transactions where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. I find that synchronized deal per se is not illegal. On the other hand, the synchronized deal with fraudulent or deceptive intention to create misleading appearance of trading and to manipulate the price and volume of the scrip price to tamper the price discovery mechanism of stock exchange is no doubt a serious matter.
5.6 Hence the issue to be decided in this case is whether the broker has carried out any such synchronized trades and to take a decision as to whether the penalty recommended by the Enquiry Officer against the broker is warranted. I find that the broker had executed synchronized/matching trades in the shares of Ranbaxy with the counter party members. Synchronized/matching trades are evident from the fact that in each case, order quantity and price are the same as counter party order quantity and price. I note that the percentage of matching transactions of the Broker to their total transactions in the shares of Ranbaxy during the period under consideration was 4.62%.
5.7 I observe that the Broker executed 21 instances of synchronised deals spread over 13 days during the period July 12, 1999 to October 26, 1999. I observe that most of buy and sell orders of the Broker were placed with zero second difference to the counter orders while in few cases the orders were matched within seconds. This shows that in these trades, the counter orders were placed exactly for the same quantity and price before the original orders got displayed on the exchange terminal. This can not be a mere coincidence. These trades where buy and sell orders were placed exactly at the same time with the same order quantity and price do not appear to be bonafide. I have also noted that the Broker has not given any explanation for the above synchronised trades. What he has submitted is that he will not do any such type of trades in future and requested to forgive him and pleaded for a minimum penalty.
5.8 The intention of the parties to execute such transactions could be inferred from the attending circumstances because direct evidence in such cases may not be available. Further, several of these trades can not be treated as mere coincidence in such a liquid scrip. Evidently the Broker has put these trades with a view to create misleading appearance of trading. This synchronization of trades tampers with price discovery mechanism of stock exchange and also hampers transparency. These trades abetted in creating artificial volumes and false market in the scrip of Ranbaxy Laboratories Ltd. Therefore, I find that the Broker had violated the provisions of 4 (b) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 and Regulation 7 read with Section A (3) and (4) of Code of Conduct as specified in Schedule II of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. However, considering the volumes traded by the Broker and other facts and circumstances of the case, I am of the view that a penalty of ‘censure’ will suffice.
6.0 ORDER
6.1 Therefore, in exercise of the 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 penalty of ‘censure’ on the Broker M/s S. P. Rakhecha & Co, (Shanti Prasad Rakhecha) with SEBI Registration no. INB031032718.
|
Place: Mumbai
|
V. K. CHOPRA
|
|
Date: March 06, 2007
|
WHOLE TIME MEMBER
|
|
|
SECURITIES AND EXCHANGE BOARD OF INDIA
|