SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

            Whereas, Securities and Exchange Board of India (hereinafter referred to as SEBI), pursuant to an investor complaint received in 1998, conducted an investigation into the alleged price manipulation in the scrip of Mefcom Capital Markets Limited (hereinafter referred to as MCML) during the period from January 1994 to February 1995, and the investigation revealed that during the period covered under investigation the price of the scrip moved from Rs.12/- in January 1994 to about Rs.155/- in January 1995, immediately prior to the public-cum rights issue  which opened on February 01,1995 without there being any significant change in economic fundamentals of MCML; and

           whereas, the investigation further revealed that NSM Securities Pvt. Limited (hereinafter referred to as NSM) had aided the promoters of the company in price manipulation in the scrip immediately prior to the opening of the public–cum-rights issue, through Mefcom Securities and Stock Brokers Limited (hereinafter referred to as MSSB) which is an associate entity of MCML; and   

           whereas, an Enquiry Officer was thus appointed by SEBI vide order dated May 13, 2003 under Regulation 5 of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, (hereinafter referred to as ‘Enquiry Regulations’) to enquire into the alleged violations of Securities and Exchange Board of India (Stock Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to as Broker Regulations); and

           whereas, the Enquiry Officer after conducting the Enquiry in terms of the Enquiry Regulations found that the NSM had traded in the illiquid scrip of MCML prior to its rights-cum-public issue and majority of the trades, i.e, around 24.14% of the buy and 68.97% of the sell of NSM in the scrip of MCML were with the counter party broker MSSB, an associate entity of MCML; and

            whereas, the Enquiry Officer  also found that NSM had traded in the scrip of MCML between 12.09.94 and 16.02.1995 when the price of the scrip shot up from Rs 75/- to Rs.180/- i.e. just around the opening of the public-cum-rights issue of MCML which eventually opened with a premium of Rs 60/- per share; and

           whereas, the Enquiry Officer  further observed that  this sudden trading activity with no change in economic fundamentals of MCML immediately prior to the public issue and the attendant circumstances should have aroused the suspicion of NSM as to the motive of the clients particularly when the counter party was MSSB, the broker related to the issuer company; and

           whereas, the Enquiry Officer also found that it cannot be said that the broker has exercised due skill and diligence for transactions in the scrip of MCML with a counter party who is an associate of the issuer company in an open outcry system against the background of the unusual movements in the volumes traded and the prices of the scrip prior to the public issue of the company; and

whereas, the Enquiry Officer has found and concluded that the transactions conducted by NSM resulted in price manipulation and thus NSM failed to  comply with Clause A (1), (3) & (4) of Code of Conduct as specified in Schedule II read with  regulation 7 of broker Regulations, and therefore recommended minor penalty of suspension of the Certificate of Registration  of NSM for a period of thirty days; and

whereas, a copy of the said Enquiry Report was forwarded to NSM along with a show cause notice dated September 21, 2004  advising it to show cause as to why action as may be considered appropriate should not be taken against it; and

whereas, NSM replied to the said show cause notice vide its letter dated October 13, 2004 and interalia submitted that it has no direct or indirect connection with MCML and it was not involved in any manipulation of the price of the scrip and it further submitted that proposed suspension recommended by the Enquiry Officer may be revoked; and

whereas, it is observed that the Enquiry Officer having considered these submissions made before him also, recommended the minor penalty of suspension of certificate of registration for a period of 30 days.

Now therefore,

I, having considered the nature and gravity of the charges established, the facts and circumstances of the case, the recommendation of the Enquiry Officer, the submissions made by NSM thereto and the mitigating factors of the case, while agreeing with the findings of the Enquiry Officer, in exercise of powers conferred under Section 19 of the SEBI Act, read with Regulation 13(4) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulation 2002, hereby suspend the Certificate of registration of NSM Securities Private Limited (Reg. No. INB051005531), member DSE, for a period of 30 days.

This order shall come into force after three weeks from the date of the order.

            DATE : 29.12.05

PLACE: MUMBAI

MADHUKAR

WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA