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Executing in non-genuine trades and creating an appearance of artificial trading in the segment contributes to market abuse – THE SECURITIES AND EXCHANGE BOARD OF INDIA

Executing in non-genuine trades and creating an appearance of artificial trading in the segment contributes to market abuse – THE SECURITIES AND EXCHANGE BOARD OF INDIA

The SEBI conducted investigation in trading activities in illiquid stock segment and it was observed that large scale trade reversals were found in the stock options segment, and it was found that a total of 14,720 entities were involved in the execution of non-genuine trades to end proceedings, a settlement scheme was framed, and a one-time opportunity was given to entities to settle. Many entities did not file for the settlement and one such entity is Sanjana Bohra (Notice). the adjudication proceedings were initiated against the noticee for the alleged violation of the provisions of Regulations 3(a), (b), (c), (d) and Regulation 4(1) and 4(2) (a) of the SEBI Regulations 2003 and an adjudication officer GEETHA G was appointed in [ADJUDICATION ORDER NO. Order/GG/VV/2021-22/ 14989]

A show cause notice was sent to noticee under section Rule 4(1) of the SEBI Adjudication Rules to show cause as to why an inquiry should not be initiated against the Noticee and thereafter penalty imposed against him under section 15HA of the SEBI Act. The noticee replied to the notice and the proceedings were initiated.

The noticee in his submissions contends that the present proceedings have been initiated with a delay of more than 6 years. in response to this, the officer notes that a total of 14270 entities were involved in similar proceedings and that adjudication proceedings were initiated against 13,186 entities who did not go in for settlement and the reason behind the delay was because of the huge number of entities so this submission does not hold merit.

The facts of the case and material was taken into consideration and it was found that noticee has engaged in 4 non-genuine trades and 2 unique contracts and from the transactions made by noticee it was found that the Noticee and the counterparty have placed their buy orders and sell orders within a difference of seconds that show synchronization of time in placing orders and the price and doing transaction within a short period of time shows the non-genuine of the trade and illiquidity of the contract .

Further trading patterns of the noticee shows that the noticee has made profits from these trades by synchronizing the trades and executing non-genuine trades this created an appearance of artificial trading in the segment, thereby contributing to market abuse. The officer is convinced that the trades all into the category of non-genuine trades entered by two parties on the stock exchange platform by mutual understanding, thereby attracting the prohibition against fraudulent or manipulative and unfair trade practices contained in SEBI (PFUTP) Regulations.  The officer also relied on the case of Rakhi Trading (SEBI Vs. Rakhi Trading – CANo.1969/2011, Order dated February 8, 2018)

From the facts and circumstances presented it is clear that   the Noticee’s transactions in question falls within the mischief of unfair and fraudulent or manipulative trade practice, as contemplated in the SEBI (PFUTP) Regulations and the noticee is liable for a monetary penalty of Rs 5,00,000/- under section 15HA of the SEBI Act for violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the PFUTP Regulations.

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Order reviewed by Naveen Sharma

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