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Executing non-genuine trade creates a false misleading appearance of trades and are manipulative and deceptive – THE SECURITY AND EXCHANGE BOARD OF INDIA

Executing non-genuine trade creates a false misleading appearance of trades and are manipulative and deceptive – THE SECURITY AND EXCHANGE BOARD OF INDIA

The SEBI observed some large-scale trades reversals in the stock options segment and an investigation was conducted in this matter and the Sourabh Goenka (NOTICEE) was alleged for violating the provisions of Regulations3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) of the SEBI regulations,2003 which deals with the matter of illiquid stock options .The  adjudication proceedings were conducted in the matter by the appointed ADJUDICATING OFFICER AMITESH KUMAR in [ADJUDICATION ORDER NO. Order/AK/DK/2021-22/14893]

The investigation results show that a total of 2,91,744 trades comprising 81.4% of all the trades executed in Stock Options Segment were considered as non-genuine trades and these trades were observed in illiquid stock options the noticee was found to be indulged in the execution of alleged non-genuine trades and it was alleged that noticee has created a false and misleading appearance of trades and creation of artificial volumes in stock options and for violating the SEBI rules and regulations. A show-cause notice was sent to noticee Rule 4(1) of the Adjudication Rules to inquire as to why an inquiry should not be held against the noticee and why penalty should not be imposed on noticee under Section 15HA of the SEBI Act, 1992.

The administrative representative on behalf of the noticee in response to the show-cause notice requested for a delay and another date for a personal hearing. the adjudication proceedings were initiated in the matter on the abovementioned issues

In the proceedings, the trades patterns of noticee were taken into consideration and the trade patterns of noticee show that the non-genuineness of the trades is evident from that there is a substantial difference in prices and the dealing patterns are different from the normal patterns and this, it is clear that noticee trades were non-genuine and created a false and misleading appearance of trades and are manipulative and deceptive. The authority places its reliance on the case of SEBI vs. Rakhi Trading Private Ltd (2018) 13 SCC 753 and SEBI vs. Kishore R Ajmera (AIR 2016 SC 1079).

The non-genuineness is also evident from the fact that there was no commercial basis for the buying and selling of trades within a short period. this a clear indication that there was pre-determination in the prices by the counterparties while executing the trades. The non-genuine trades come under the definition of ‘fraud’ and are considered fraudulent under Regulation 2(1)(c) of the PFUTP Regulations and prohibited under the provisions of Regulations 3(a), 3(b), 3(c), and 3(d) and 4(1) and 4(2)(a) of the PFUTP Regulation.

Considering the above-mentioned factor, it is concluded that the trading behavior of the Noticee has resulted in the creation of artificial trading volumes in the Stock Options contract.  the allegation of violation of Regulations 3(a), (b), (c), (d), 4(1), and 4(2)(a) of PFUTP Regulations, 2003 are clear, and penalty of Rs. 5,00,000 imposed under Section 15HA of the Securities and Exchange Board of India Act, 1992. The order and direction in the matter were issued to the noticee.

Click here to read the Order

Order reviewed by Naveen Sharma

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