BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: V. K. CHOPRA, WHOLE TIME MEMBER
ORDER
{Under Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 against Shankar Lal Chokhany (Kashi Prasad Chokhany), Broker, Calcutta Stock Exchange in the scrip of Ranbaxy Laboratories Limited}
1.0 BACKGROUND
1.1 Ranbaxy Laboratories Ltd. (hereinafter referred to as “Ranbaxy”) is engaged mainly in the business of manufacturing and marketing of pharma products. The price of the scrip of Ranbaxy moved up significantly from Rs.270/- in January 1999 to about Rs.1200/- in October 1999 accompanied by significant increase in volumes. Considering the above major spurt in price and volumes traded in the Exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE), Calcutta Stock Exchange (CSE) and Delhi Stock Exchange (DSE). Securities and Exchange Board of India (hereinafter referred to as “the Board”) conducted an investigation into the affairs relating to buying, selling and dealing in the shares of Ranbaxy against several brokers including Shankar Lal Chokhany (Kashi Prasad Chokhany), a broker of CSE (hereinafter referred to as “Broker”) bearing SEBI Registration no. INB030036811.
1.2 The Board after considering the Investigation Report, appointed an Enquiry Officer vide Order dated November 27, 2002 under Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as “Enquiry Regulations”) to enquire into the alleged violations of 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 read with clause A(3) and (4) of the Code of Conduct for Stock Brokers as specified in Schedule II of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to 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 Enquiry Regulations submitted a report dated November 14,, 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 six months.
2.0 SHOW CAUSE NOTICE & REPLY
2.1 Pursuant to the receipt of the said Enquiry Report, a Show Cause Notice dated December 05, 2003 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 him.
2.2 The Broker submitted his reply to the said show cause notice, vide letter dated December 24, 2003. In the said reply, the Broker stated that he had not indulged in synchronized/matching trades, which tampers with price discovery mechanism of the concerned exchange and also the smooth functioning of the market.
2.3 In the above reply, the Broker submitted that his reply dated July 18, 2003 which was filed in the enquiry proceedings may be considered in these proceedings and also informed that he did not want any personal hearing in the matter. Therefore, I am proceeding in the matter on the basis of the materials on record before me.
3.0 REPLY OF THE BROKER IN THE ENQUIRY PROCEEDINGS
3.1 I observe that the Broker submitted reply to the show cause notice issued in the enquiry proceedings vide its letter dated July 18, 2003. He inter alia submitted as follows:
· The Broker stated that he had not executed any synchronized / matching trades in the shares of Ranbaxy during the period January 1, 1999 to October 31, 1999 with any of the other brokers of CSE including the broker(s) who dealt with the associates of Ketan Parekh / brokers. He also submitted that the trades were executed through the computerized system and the seller and buyer click the computer button at same time either to buy or to sell the shares, without knowing the identity of each other, and hence at times the transactions were held simultaneously. As such neither the buyer nor the seller was aware of the identity.
· The Broker submitted that he had bought and sold approximately 95 lakh shares of Ranbaxy during the period January 1999 to October 31, 1999 and if a negligible quantity of 10 lakh shares of the Ranbaxy scrip had been found to be synchronized / matching trades, it is not deliberate or intentional on his part.
4.0 CONSIDERATION OF ISSUES & FINDINGS
4.1 I have carefully examined the enquiry report, show cause notice, and reply of the Broker.
4.2 The scrip of 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.
4.3 The Enquiry Officer arrived at a conclusion in his enquiry report that the Broker carried out 74 instances of synchronization of trades with a view to create misleading appearance of trading which tampers with price discovery mechanism of stock exchange. The charges levelled against the Broker are on the basis of the aforesaid synchronized trades. The synchronized trade is a kind of transaction where the seller and buyer execute the trade for almost same quantity and price at substantially the same time. The 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 with a view to get undue gain out of it, is a serious matter.
4.4 Hence the issue to be decided in this case is whether the Broker has carried out any such synchronised trades and to take a decision as to whether the penalty recommended by the enquiry officer against the Broker is warranted. In order to decide the said issue, I felt it necessary to analyze the under mentioned details of synchronized trades executed by the Broker;
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Buy Mem Name
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Trade date
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Buy Order time
|
Buy order Qty
|
Buy orderrate
|
Sell Mem Name
|
Sell Order time
|
Sell Order Qty
|
Sell order rate
|
Time Diffe rence
|
Price diffe rence
|
|
SHREE HARIVANSA SECURITIES PVT
|
5/5/1999
|
11:11:15
|
10000
|
634.80
|
SHANKAR LAL CHOKHANY
|
11:11:15
|
10000
|
634.80
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
5/10/1999
|
11:42:31
|
25000
|
728.30
|
SHANKAR LAL CHOKHANY
|
11:42:31
|
25000
|
728.30
|
0:00:00
|
0.00
|
|
SHYAM SUNDAR DALMIA
|
5/11/1999
|
11:20:33
|
25000
|
758.20
|
SHANKAR LAL CHOKHANY
|
11:20:33
|
25000
|
758.20
|
0:00:00
|
0.00
|
|
SOMANI STOCK BROKING PVT. LTD
|
5/12/1999
|
11:54:39
|
5000
|
738.90
|
SHANKAR LAL CHOKHANY
|
11:54:38
|
5000
|
738.90
|
0:00:01
|
0.00
|
|
Lexus Shares & Stock Brokers P
|
5/12/1999
|
12:15:08
|
5000
|
742.00
|
SHANKAR LAL CHOKHANY
|
12:15:08
|
5000
|
742.00
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
5/18/1999
|
10:42:07
|
25000
|
709.90
|
SHANKAR LAL CHOKHANY
|
10:42:07
|
25000
|
709.90
|
0:00:00
|
0.00
|
|
SINGHANIA BROTHERS LIMITED
|
5/19/1999
|
13:11:44
|
5000
|
721.00
|
SHANKAR LAL CHOKHANY
|
13:11:45
|
5000
|
721.00
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/21/1999
|
10:46:00
|
7500
|
652.80
|
PRAKASH CHAND BAID
|
10:46:01
|
7500
|
652.80
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/21/1999
|
10:47:20
|
5000
|
652.80
|
MPC STOCK BROKING PVT LTD
|
10:47:20
|
5000
|
652.80
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/21/1999
|
11:04:36
|
7500
|
648.60
|
SINGHANIA BROTHERS LIMITED
|
11:04:36
|
7500
|
648.60
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/24/1999
|
10:37:55
|
5000
|
644.40
|
Murari Securities Ltd.
|
10:37:55
|
5000
|
644.40
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
5/24/1999
|
10:48:57
|
7500
|
646.00
|
SINGHANIA BROTHERS LIMITED
|
10:48:57
|
7500
|
646.00
|
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
|
|
SHREE HARIVANSA SECURITIES PVT
|
6/8/1999
|
12:19:41
|
25000
|
603.70
|
SHANKAR LAL CHOKHANY
|
12:19:40
|
25000
|
603.70
|
0:00:01
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
6/9/1999
|
10:30:46
|
25000
|
609.70
|
SHANKAR LAL CHOKHANY
|
10:30:46
|
25000
|
609.70
|
0:00:00
|
0.00
|
|
SINGHANIA BROTHERS LIMITED
|
6/9/1999
|
11:04:59
|
15000
|
616.20
|
SHANKAR LAL CHOKHANY
|
11:04:59
|
15000
|
616.20
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
6/15/1999
|
12:32:33
|
10000
|
570.00
|
SHREE HARIVANSA SECURITIES PVT
|
12:32:33
|
10000
|
570.00
|
0:00:00
|
0.00
|
|
RAJENDRA KUMAR CHOKHANY
|
6/16/1999
|
14:26:52
|
10000
|
587.70
|
SHANKAR LAL CHOKHANY
|
14:26:52
|
10000
|
587.70
|
0:00:00
|
0.00
|
|
RAJENDRA KUMAR CHOKHANY
|
6/23/1999
|
12:43:13
|
15000
|
656.10
|
SHANKAR LAL CHOKHANY
|
12:43:12
|
15000
|
656.10
|
0:00:01
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
6/23/1999
|
13:12:50
|
20000
|
668.50
|
SHANKAR LAL CHOKHANY
|
13:12:49
|
20000
|
668.50
|
0:00:01
|
0.00
|
|
SINGHANIA BROTHERS LIMITED
|
6/23/1999
|
14:49:18
|
10000
|
664.50
|
SHANKAR LAL CHOKHANY
|
14:49:17
|
10000
|
664.50
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
6/29/1999
|
12:08:43
|
18200
|
666.70
|
SHREE HARIVANSA SECURITIES PVT
|
12:08:43
|
18200
|
666.70
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
6/29/1999
|
12:10:19
|
10000
|
665.70
|
SHYAM SUNDAR DALMIA
|
12:10:20
|
10000
|
665.70
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
6/30/1999
|
11:42:06
|
21800
|
659.40
|
SHREE HARIVANSA SECURITIES PVT
|
11:42:07
|
21800
|
659.40
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
7/2/1999
|
13:21:57
|
10000
|
658.20
|
SINGHANIA BROTHERS LIMITED
|
13:21:57
|
10000
|
658.20
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
7/5/1999
|
13:19:16
|
25000
|
675.80
|
SHANKAR LAL CHOKHANY
|
13:19:16
|
25000
|
675.80
|
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
|
|
SHANKAR LAL CHOKHANY
|
7/5/1999
|
15:23:39
|
5000
|
675.40
|
RAJENDRA KUMAR CHOKHANY
|
15:23:39
|
5000
|
675.40
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
7/6/1999
|
14:37:42
|
20000
|
683.50
|
SHANKAR LAL CHOKHANY
|
14:37:42
|
20000
|
683.50
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
7/7/1999
|
11:11:08
|
15000
|
703.30
|
SHANKAR LAL CHOKHANY
|
11:11:08
|
15000
|
703.30
|
0:00:00
|
0.00
|
|
SINGHANIA BROTHERS LIMITED
|
7/7/1999
|
11:11:27
|
12000
|
703.20
|
SHANKAR LAL CHOKHANY
|
11:11:27
|
12000
|
703.20
|
0:00:00
|
0.00
|
|
SHYAM SUNDAR DALMIA
|
7/7/1999
|
11:19:10
|
35000
|
700.40
|
SHANKAR LAL CHOKHANY
|
11:19:10
|
35000
|
700.40
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
7/7/1999
|
14:49:12
|
15000
|
691.50
|
RAJENDRA KUMAR CHOKHANY
|
14:49:12
|
15000
|
691.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
7/13/1999
|
12:56:25
|
5000
|
724.30
|
RAJENDRA KUMAR CHOKHANY
|
12:56:25
|
5000
|
724.30
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
7/20/1999
|
13:11:39
|
25000
|
811.20
|
SHANKAR LAL CHOKHANY
|
13:11:39
|
25000
|
811.20
|
0:00:00
|
0.00
|
|
SHYAM SUNDAR DALMIA
|
7/21/1999
|
13:33:28
|
15000
|
857.40
|
SHANKAR LAL CHOKHANY
|
13:33:28
|
15000
|
857.40
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
7/23/1999
|
12:30:39
|
25000
|
897.20
|
SHREE HARIVANSA SECURITIES PVT
|
12:30:39
|
25000
|
897.20
|
0:00:00
|
0.00
|
|
RAJENDRA KUMAR CHOKHANY
|
7/27/1999
|
13:04:00
|
15000
|
881.80
|
SHANKAR LAL CHOKHANY
|
13:04:00
|
15000
|
881.80
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
7/28/1999
|
13:43:54
|
14640
|
866.80
|
RAJENDRA KUMAR CHOKHANY
|
13:43:54
|
14640
|
866.80
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/9/1999
|
14:56:47
|
5000
|
998.40
|
JALAN & CO.
|
14:56:47
|
5000
|
998.40
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/10/1999
|
10:26:00
|
25000
|
975.50
|
SHREE HARIVANSA SECURITIES PVT
|
10:26:01
|
25000
|
975.50
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/10/1999
|
10:26:52
|
20000
|
974.60
|
SHREE HARIVANSA SECURITIES PVT
|
10:26:52
|
20000
|
974.60
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/10/1999
|
12:00:37
|
5000
|
980.00
|
PREM RATAN BAHETY
|
12:00:40
|
5000
|
980.00
|
0:00:03
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/13/1999
|
11:13:37
|
20000
|
1012.80
|
Agbros Securities Pvt. Ltd.
|
11:13:37
|
20000
|
1012.80
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/13/1999
|
15:06:14
|
13000
|
1003.80
|
RAJENDRA KUMAR CHOKHANY
|
15:06:14
|
13000
|
1003.80
|
0:00:00
|
0.00
|
|
RAJENDRA KUMAR CHOKHANY
|
8/17/1999
|
12:10:28
|
5000
|
991.50
|
SHANKAR LAL CHOKHANY
|
12:10:28
|
5000
|
991.50
|
0:00:00
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
8/17/1999
|
12:55:18
|
20000
|
992.50
|
SHANKAR LAL CHOKHANY
|
12:55:17
|
20000
|
992.50
|
0:00:01
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
8/17/1999
|
15:14:11
|
25000
|
986.30
|
SHANKAR LAL CHOKHANY
|
15:14:11
|
25000
|
986.30
|
0:00:00
|
0.00
|
|
DINESH KUMAR SINGHANIA & CO.
|
8/20/1999
|
14:13:48
|
40000
|
1048.50
|
SHANKAR LAL CHOKHANY
|
14:13:47
|
40000
|
1048.50
|
0:00:01
|
0.00
|
|
DINESH KUMAR SINGHANIA & CO.
|
8/20/1999
|
14:44:49
|
20000
|
1051.70
|
SHANKAR LAL CHOKHANY
|
14:44:47
|
20000
|
1051.70
|
0:00:02
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
8/24/1999
|
12:26:40
|
16000
|
1039.50
|
RAJENDRA KUMAR CHOKHANY
|
12:26:40
|
16000
|
1039.50
|
0:00:00
|
0.00
|
|
SANJAY KHEMANI
|
8/25/1999
|
14:39:46
|
10000
|
958.20
|
SHANKAR LAL CHOKHANY
|
14:39:41
|
10000
|
958.20
|
0:00:05
|
0.00
|
|
Agbros Securities Pvt. Ltd.
|
8/27/1999
|
12:37:17
|
25000
|
1061.20
|
SHANKAR LAL CHOKHANY
|
12:37:17
|
25000
|
1061.20
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
9/10/1999
|
15:08:36
|
7000
|
1106.50
|
M. PRASAD & CO. LTD.
|
15:08:38
|
7000
|
1106.50
|
0:00:02
|
0.00
|
|
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
|
|
SHANKAR LAL CHOKHANY
|
9/14/1999
|
13:03:23
|
20000
|
1063.20
|
DALMIA SECURITIES (P) LTD.
|
13:03:24
|
20000
|
1063.20
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
9/14/1999
|
13:12:06
|
5000
|
1066.10
|
SPAN STOCK BROKING PRIVATE LIM
|
13:12:06
|
5000
|
1066.10
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
9/22/1999
|
10:36:30
|
5000
|
1020.00
|
DINESH KUMAR SINGHANIA & CO.
|
10:36:31
|
5000
|
1020.00
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
9/27/1999
|
13:04:01
|
5000
|
1054.80
|
AMITABH SONTHALIA
|
13:04:02
|
5000
|
1054.80
|
0:00:01
|
0.00
|
|
SOMANI STOCK BROKING PVT. LTD
|
9/27/1999
|
14:22:24
|
20000
|
1067.80
|
SHANKAR LAL CHOKHANY
|
14:22:23
|
20000
|
1067.80
|
0:00:01
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
9/28/1999
|
13:49:35
|
12500
|
1068.60
|
SHANKAR LAL CHOKHANY
|
13:49:35
|
12500
|
1068.60
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/4/1999
|
13:03:11
|
7500
|
1001.20
|
SOMANI STOCK BROKING PVT. LTD
|
13:03:12
|
7500
|
1001.20
|
0:00:01
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/4/1999
|
14:31:25
|
5000
|
1005.30
|
KIRAN PARASRAMPURIA
|
14:31:25
|
5000
|
1005.30
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/5/1999
|
12:18:44
|
15000
|
995.50
|
SURENDRA KUMAR DUGAR & CO.
|
12:18:44
|
15000
|
995.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/5/1999
|
12:42:41
|
15000
|
993.80
|
SURENDRA KUMAR DUGAR & CO.
|
12:42:41
|
15000
|
993.80
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/5/1999
|
12:52:25
|
6000
|
991.10
|
MPC STOCK BROKING PVT LTD
|
12:52:25
|
6000
|
991.10
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/5/1999
|
14:34:05
|
5000
|
1001.00
|
C. K. TIBRAWALLA & CO.
|
14:34:06
|
5000
|
1001.00
|
0:00:01
|
0.00
|
|
SHREE HARIVANSA SECURITIES PVT
|
10/8/1999
|
12:05:58
|
25000
|
1135.90
|
SHANKAR LAL CHOKHANY
|
12:05:58
|
25000
|
1135.90
|
0:00:00
|
0.00
|
|
SURYA PRAKASH TOSHNIWAL
|
10/12/1999
|
10:06:02
|
5000
|
1150.00
|
SHANKAR LAL CHOKHANY
|
10:06:07
|
5000
|
1150.00
|
0:00:05
|
0.00
|
|
Murari Securities Ltd.
|
10/12/1999
|
11:37:32
|
5000
|
1153.00
|
SHANKAR LAL CHOKHANY
|
11:37:31
|
5000
|
1153.00
|
0:00:01
|
0.00
|
|
DINESH KUMAR SINGHANIA & CO.
|
10/13/1999
|
12:53:19
|
10000
|
1189.50
|
SHANKAR LAL CHOKHANY
|
12:53:19
|
10000
|
1189.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/15/1999
|
13:14:54
|
8500
|
1173.50
|
Agbros Securities Pvt. Ltd.
|
13:14:54
|
8500
|
1173.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/22/1999
|
13:33:57
|
6000
|
1036.50
|
SURESH KUMAR ALMAL
|
13:33:57
|
6000
|
1036.50
|
0:00:00
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
10/26/1999
|
11:39:05
|
5000
|
1020.00
|
SONTHALIA & CO.
|
11:39:01
|
5000
|
1020.00
|
0:00:04
|
0.00
|
4.5 I find that the Broker executed 74 instances of synchronized trades in Ranbaxy with the counter party members. Synchronized trades are evident from the fact that in all cases order quantity and price are same with counter party order quantity and price. Orders were placed at the same time in most of the cases with counter party brokers while in few cases the orders were placed within a period of 1-5 seconds. The Enquiry Officer has also observed that the percentage of the matching transactions of the Broker to his total transactions in the share of RLL during the period under consideration is 11.36%. In one instance the order quantity is not the usual quantity like 100/1000/ 5000/100000 shares, etc. Even this order quantity is matched by the Broker with a counter party broker simultaneously. Details of the said order are given below:
|
Mem. Code
|
Member Name
|
Order Date
|
Time
|
Qty.
|
Price
|
B/ S
|
Order No.
|
|
D0149
|
Shankar Lal Chokhany
|
7/28/99
|
13:43:54
|
14640
|
866.80
|
B
|
540160
|
|
D0536
|
Rajendra Kumar Chokhany
|
7/28/99
|
13:43:54
|
14640
|
866.80
|
S
|
540159
|
4.6 In the above transaction time difference between buy and sell order is zero second which indicates a clear prior understanding. I find that there are many other transactions where the difference between buy and sell orders are zero second. On the basis of such type of transactions, the Enquiry Officer held that such matching and synchronised deals are possible only if the trades are put in the system with prior understanding. In such cases prices and quantities have been negotiated outside the system and orders had been executed simultaneously.
4.7 It is also observed that the Broker executed 20 trades with M/s Shree Harivansha Securities Pvt. Ltd. and 10 trades with Rajendra Kumar Chokhany. Such large number of synchronised trades with specific brokers that too with same order quantity and time indicates abnormal trading pattern which is against the prevailing market system. Further, the broker reversed his sales position of June 9, 1999 (25000 shares) with M/s Shree Harivansha Securities Pvt Ltd on June 15, 1999 (15000 shares) which falls in the next settlement period. Similar pattern of reversal of trades in the next settlement period is also observed on June 23, 1999, June 29, 1999, July 05, 1999, July 20, 1999 and July 23, 1999.
4.8 I have also observed that orders for 75,000 shares out of total of 10,36,140 shares (i.e. 7.2%) of the Broker were matched with the Broker Dinesh Kumar Singhania, who had dealt for entities connected or associated with Ketan Parekh group. Dinesh Kumar Singhania had been declared defaulter by CSE and SEBI had subsequently cancelled his registration as per Press Release dated October 22, 2001. The details of the said transactions are given hereunder.
|
Buy Mem Name
|
Trade date
|
Buy Order time
|
Buy order Qty
|
Buy orderrate
|
Sell Mem Name
|
Sell Order time
|
Sell Order Qty
|
Sell order rate
|
Time Difference
|
Price Difference
|
|
DINESH KUMAR SINGHANIA & CO.
|
8/20/1999
|
14:13:48
|
40000
|
1048.50
|
SHANKAR LAL CHOKHANY
|
14:13:47
|
40000
|
1048.50
|
0:00:01
|
0.00
|
|
DINESH KUMAR SINGHANIA & CO.
|
8/20/1999
|
14:44:49
|
20000
|
1051.70
|
SHANKAR LAL CHOKHANY
|
14:44:47
|
20000
|
1051.70
|
0:00:02
|
0.00
|
|
SHANKAR LAL CHOKHANY
|
9/22/1999
|
10:36:30
|
5000
|
1020.00
|
DINESH KUMAR SINGHANIA & CO.
|
10:36:31
|
5000
|
1020.00
|
0:00:01
|
0.00
|
|
DINESH KUMAR SINGHANIA & CO.
|
10/13/1999
|
12:53:19
|
10000
|
1189.50
|
SHANKAR LAL CHOKHANY
|
12:53:19
|
10000
|
1189.50
|
0:00:00
|
0.00
|
4.9 I have examined the reply of the Broker submitted before the Enquiry Officer. The Broker mainly contented that they are not aware of the counter parties and the trading was done “ONLINE” where no body knows the name and identity of the counter party. They stated that it is not a deliberate attempt by them. It may be noted that synchronized deals are possible if the trades are put in the system with prior understanding. In such cases prices and quantities have been negotiated outside the system and orders had been executed simultaneously. Synchronized trades entered into with prior understanding have no contribution in proper price discovery. Ordinary investors are deprived of the best price discovered in the system. Such tampering of price discovery mechanism through synchronized and matching trades goes against the fundamental concept of stock exchange where price is discovered through the mechanism of demand and supply of a particular scrip.
4.10 Further, I am of the view that several synchronization of trades cannot be treated as mere coincidence. In such cases, prices and quantities had been negotiated outside the system and orders had been executed simultaneously. I find that all the aforementioned 74 transactions give an impression that these were all synchronized and traded to create artificial market, otherwise there was no possibility of such perfect matching of quantity price, etc. The said issue was already discussed by the Hon’ble SAT in Appeal Nos 54 to 57 of 2002 in the case of Nirmal Bang Securities (P) Ltd. vs. SEBI and held that in a synchronized trading manipulative intention is implicit and the synchronized nature of the transaction is in violation of regulation 4 of the FUTP Regulations. Further, I observe that the standard of proof required in a proceeding of this nature is at variance with the standard of proof required in criminal cases. It is sufficient if the preponderance of probabilities suggests towards the indulgence of the delinquent in the misconduct. The strict rules of Evidence Act and proof beyond reasonable doubt are not applicable to a proceeding of this nature. The Supreme Court’s decision in Gulabchand vs Kudilal AIR, 1966, SC 1734 and the decision of the Special Court for trial of offences relating to transactions in securities in the matter of National Housing Bank versus ANZ Grindlays Bank, 1998 (2 ) LJ 153 are relied upon in this regard.
4.11 In view of these, I find that 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 militates against concept of transparency. The Broker had entered into several synchronized deals. These trades abetted in creating artificial volumes and false market in the scrip of Ranbaxy Laboratories Ltd. and thus the trades executed by the Broker are in violation of the Regulation 7 read with the clause A (3) and (4) of Code of Conduct as specified in Schedule II of Stock Brokers Regulations, which provides that,
(3) Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains.
(4) Malpractices : A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.
4.12 Further, the Broker through his dealings in the scrip of Ranbaxy has also violated the provisions of Regulation 4 (b) and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995, which provides that,
4 No person shall -
(b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;
(c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions;
4.13 Having considered all aspects and circumstances of the case, I am of the view that suspension of certificate of registration of the Broker for a period of 7 days is sufficient to meet the ends of justice.
5.0 ORDER
5.1 Taking into consideration all facts and circumstances of the matter and 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 Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, I hereby impose a minor penalty of suspension of certificate of registration of Shri Shankar Lal Chokhany (Kashi Prasad Chokhany) bearing SEBI Registration no. INB030036811 for a period of 7 days.
5.2 This order shall come into force on the expiry of 21 days from the date of this order.
|
Place: Mumbai
|
V. K. CHOPRA
|
|
Date: March 15, 2007
|
WHOLE TIME MEMBER
|
|
|
SECURITIES AND EXCHANGE BOARD OF INDIA
|