order passed by wtm u/s 15-i (3) of the sebi act, 1992 in respect of adroit financial services...

8/10/2019 Order passed by WTM u/s 15-I (3) of the SEBI Act, 1992 in respect of Adroit Financial Services Private Limited and

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WTM/PS/62/EFD/JAN/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIACORAM : PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

Un!" #!$%&'n 15(I )*+ "! -&%. #!$%&'n 1 ' %.! S!$"&%&!# n E$.n3! B'" ' In& A$%,12

In %.! 4%%!" ' B."%& G'7 In'4!& L&4&%!

In "!#8!$% ' A"'&% F&nn$& S!"9&$!# P"&9%! L&4&%! n AG S!$"&%&!# n C'n#%n$L&4&%!

D%! ' .!"&n3 : A3#% 1;, 201;

A88!"n$!:

ForA"'&% F&nn$& S!"9&$!# P"&9%! L&4&%! : Mr. Ankit Lohia, Advocate, Mr. Aditya Bhansali, Consultant

and Mr. Nikhil Raj Gupta, ice !resident.

For AG S!$"&%&!# n C'n#%n$ L&4&%! : Mr. Ankit Lohia, Advocate and Mr. Aditya Bhansali,

Consultant.

For the S!$"&%&!# n E$.n3! B'" ' In& : Mr. B.Rajendran, General Mana"er, Ms. Anitha Anoop,

#eputy General Mana"er, Mr. C. $u"adev, Assistant General Mana"er and Mr. %. inay Rajneesh, Assistant

General Mana"er.

1


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arti(icial volu/es in the scrip and that Adroit =as alle"ed to have aided and a-etted its client, i.e., A7G

in creation o( arti(icial volu/es in the scrip o( BG)L on the listin" day.

2oldin"

)n9uiry and )/posin" !enalties -y Adjudicatin" ((icer Rules, 4? (or /akin" an in9uiry. Adroit and

A7G =ere alle"ed to have contravened the provisions o( section 41A*a, *- and *c o( the $&B) Act

read =ith re"ulations


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" note that it is a serious charge$ !ut looing into the 6uantity of shares matched i$e$ ' share in ' trade constituting total

'' shares in '' trades, " am of the vie% that a lenient vie% can be taen as such trades cannot be said to have contributed

in the creation of artificial volumes in the scrip of !G"# and therefore, the Noticee cannot be held guilty of aiding and

abetting its client in creation of artificial volume$

21< &urther, there is no allegation against the Noticee that it had indulged in price manipulation %hile e4ecuting these

trades for its client$ " find that the evidence available on record is insufficient to hold that the trades e4ecuted by AKG

contributed to the volumes in the scrip in as much as the contribution to the maret volume being insignificant to the total

volumes traded on the day of listing$ 7herefore, the charge of aiding and abetting the client in e4ecution of such fictitious

trades and thereby, creating artificial volumes in the scrip fails$

22< "n vie% of the aforesaid observations and findings, " conclude that the violation of provisions of +ection '.A a9, b9

and c9 of the Act read %ith :egulation 3a9, b9, c9, d9 and '9 ; .9a9 of the read %ith ?lause A as mentioned in +chedule "" of the !roer :egulations do not stand established$

ORDER

2*< "n vie% of the above, after considering all the facts and circumstances of the case and e4ercising the po%ers conferred

upon me under section ')1" .9 of the +!" Act, '., " hereby conclude that the charges leveled against the Noticee in

the +?N do not stand established and the matter is, accordingly disposed of$

6

O7#!"9%&'n# n &n&n3# ' %.! AO &n "!#8!$% ' AG:

@

1=< " note from the submissions made by the Noticee that the Noticee is a company and is basically engaged in arbitrage /

obbing activities in the securities maret and carry out these activities on a daily basis$ 7he Noticee %as one of the clients,

trading through Adroit, %ho had traded in the scrip of !G"# on both the e4changes on the listing day and had traded in

a fictitious manner i$e$ e4ecuted self trades for a 6uantity of '((' shares on !+ and 3.( shares on N+$ &urther,

7he Noticee had also e4ecuted . self trades from the same terminal for .. shares on !+$ As submitted by the

Noticee, 8 of its employees / authorized individuals %ere instructing around 3 traders / dealers of Adroit to punch in

orders in the scrip of !G"# on the day of listing$ " note that the buy orders and sell orders %ere being placed by different

traders from different terminals$ &urther, " also note that only '' shares have been traded in a fictitious manner from the

same terminal culminating out of '' trades$ " find merit in the submissions of the Noticee that the total volumes traded in

the scrip of !G"# on the listing day %ere high and therefore, the percentage contribution of the alleged self trades is very

meager %hich %as only ($)8* of !+-s and ($(('.* of N+-s total maret volume in the scrip of !G"#$ &urther, "

also find merit in the submission of the Noticee and after perusal of the trading details that '' shares %hich %ere matched

from the same user "2 constitute only ($((((8* of the e4change-s total maret volume in the scrip of !G"#$ 5o%ever,the Noticee should loo into this aspect and remedial steps should be taen for avoiding such instances$

1< "n vie% of the above, " note from the submission of the Noticee that it e4ecutes arbitrage trades so as to benefit from

the price difference on the stoc e4changes and due to the nature of trading there is high volume involved and the turnover

is very high$ " have noted the submissions of the Noticee that in such maret situations the matching of trades from

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different terminals is inevitable and there may not be any meeting of minds$ 5o%ever, %ith respect to the matching of

trades %hich %ere e4ecuted from the same terminal, " note that it is a serious charge$ !ut looing into the 6uantity of

shares matched i$e$ ' share in ' trade constituting total '' shares in '' trades, " am of the vie% that a lenient vie% can be

taen as such trades cannot be said to have contributed in the creation of artificial volumes in the scrip of !G"#$

20< &urther, there is no allegation against the Noticee that it had indulged in price manipulation$ " find that the evidence

available on record is insufficient to hold that the trades e4ecuted by the Noticee contributed to the artificial volumes in the

scrip in as much as the contribution of the Noticee to the maret volume being insignificant to the total volumes traded on

the day of listing$

21< "n vie% of the aforesaid observations and findings, " conclude that the violation of provisions of +ection '.A a9, b9

and c9 of the Act read %ith :egulation 3a9, b9, c9, d9 and '9 ; .9a9 of the


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5$ 7here can be no doubt that the provision cannot be invoed to correct each and every type of mistae or error committed

by the Assessing fficer, it is only %hen an order is erroneous that the section %ill be attracted$ An incorrect assumption of

facts or an incorrect application of la% %ill satisfy the re6uirement of the order being erroneous$ "n the same category fall

orders passed %ithout applying the principles of natural ustice or %ithout application of mind$

'($ 7he phrase -preudicial to the interests of the revenue- has to be read in conunction %ith an erroneous order passed by

the assessing officer$ very loss of revenue as a conse6uence of an order of assessing officer cannot be treated as preudicial to

the interests of the revenue, for e4ample, %hen an "ncome 7a4 fficer adopted one of the courses permissible in la% and it

has resulted in loss of revenueC or %here t%o vie%s are possible and the "ncome 7a4 fficer has taen one vie% %ith %hich

the ?ommissioner does not agree, it cannot be treated as an erroneous order preudicial to the interests of the revenue unless

the vie% taen by the "ncome 7a4 fficer is unsustainable in la%$ "t has been held by this ?ourt that %here a sum not

earned by a person is assessed as income in his hands on his so offering, the order passed by the assessing officer accepting

the same as such %ill be erroneous and preudicial to the interests of the revenue$D

2on-le Gujarat >i"h Court in the case o( C'44#&'n!" ' In$'4! T #o=ever, the $CN does not "ive any particulars o( ho= 5the rder6 is

not in the interest o( securities /arket.

*uAssu/in", =ithout ad/ittin" the trades =ere not in the interest o( securities /arket as alle"ed

in the $CN, that itsel( does not satis(y the test laid do=n under section 4?8)*on-le Madras >i"h Court in the case o( S%%! ' T4&

N 9#< J%.& !&!!%4 dated ;th Fe-ruary 4 in %a' Case No. 1 o( 4 *Revision

No.4 o( 4, =herein the >on-le Madras >i"h Court held as under:8


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penalty already imposed is different from restoring the penalty %hich %as imposed by the original authority but set aside by

the Appellate Assistant ?ommissioner since the subect1matter of the appeal before the 7ribunal is the order of the

appellate authority only and not the order of the original authority$ ?onse6uently, an application for restoration of the

penalty in the present case %ill not come %ithin the scope of +ection 3I39a9i9 of the Act and, therefore, the 7ribunal %as

right in not restoring the order of penalty though the reasons given by the 7ribunal for doing so are different$ 5ence the ta4

revision case is dismissed$$D

*y )n vie= o( the a-ove, it is su-/itted that as the Adjudicatin" ((icer has not i/posed any

penalty on it, the po=ers under $ection 4?8) *on-le $ecurities Appellate %ri-unal in the case o( #%

S!$"&%&!# P9%< L%< #< SEBI )A88! N'< 2? ' 2006+ has held that:8

@+!" cannot infer or assume that the broers is a%are of manipulation carried out by a client and cannot ump

to the conclusion that merely because the broer has acted as broer on behalf of such a client, it ought to have

no%n the nature of these transactionsD

*aa)n vie= o( the ratio o( the a-ove /entioned jud"/ent, it is su-/itted that even i( $&B) =as to

hold A7G "uilty o( havin" conducted the alle"ed /anipulative D(ictitious trades, the noticee as

a stock -roker, =ho had acted on -ehal( o( and under the instructions o( its clients, cannot -e

held lia-le (or the alle"ed /anipulation.

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*c

By its very nature, jo--in" involves tradin" at thin /ar"ins and capitaliin" on anticipated price

di((erences ran"in" -et=een a (e= paise to a (e= rupees. $ince traders =ho do jo--in" look (or

pro(it -ased on thin /ar"ins, the volu/e o( transactions in case o( jo--in" is 9uite su-stantial.

*d0o--in" is a reco"nied (or/ o( -usiness in the securities /arket. For this purpose, on 0uly 12,

1344, it had traded throu"h Adroit throu"h


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*h

%he a-ove and other e'planations (urnished -y us -e(ore the Adjudicatin" ((icer =ere

considered -y hi/ in a detailed order dated


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*ii O"!" %! 11


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has held that @one cannot buy and sell shares from himself$ +uch transactions are obviously fictitious and meant only to

create false volumes on the trading screen of the e4changeD.+

on-le $A%, ) note that 8

*a $el(8trades are (ictitious and reprehensi-leQ

*-

%rades =here -ene(icial o=nership is not trans(erred, are /anipulative in natureQ

*c $el(8trades create arti(icial volu/e in the /arketQ

*dIhatever -e the -usiness /odel, it should -e ensured that such /odel co/plies =ith the

re"ulatory (ra/e=orkQ

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d9 engage in any act, practice, course of business %hich operates or %ould operate as fraud or deceit upon any person in

connection %ith any dealing in or issue of securities %hich are listed or proposed to be listed on a recognized stoc e4change

in contravention of the provisions of the Act or the rules and the regulations made there under$

$ $ 7he stoc broer holding a certificate shall at all times abide by the ?ode of ?onduct as specified in +chedule ""$

C#! A ' %.! C'! ' C'n$% '" S%'$ B"'!"#

A< G!n!".

'9 "ntegrityB A stoc1broer, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his

business$

.9 4ercise of due sill and careB A stoc1broer shall act %ith due sill, care and diligence in the conduct of all his

business$

39 LanipulationB A stoc1broer shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or

spread rumours %ith a vie% to distorting maret e6uilibrium or maing personal gains$

9 LalpracticesB A stoc1broer shall not create false maret either singly or in concert %ith others or indulge in any act

detrimental to the investors interest or %hich leads to interference %ith the fair and smooth functioning of the maret$ A

stocbroer shall not involve himself in e4cessive speculative business in the maret beyond reasonable levels not

commensurate %ith his financial soundness$

)9 ?ompliance %ith statutory re6uirementsB A stoc1broer shall abide by all the provisions of the Act and the rules,

regulations issued by the Government, the !oard and the +toc 4change from time to time as may be applicable to him$

11.0.

$ecurities !vt. Ltd. *rder o( >on-le $A% dated May 44, 1341 Appeal no. ED1341. )n the said



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/atter, the stock -roker had, throu"h jo--ers, indul"ed in sel( trades. %he (ollo=in" o-servations are

relevant :

@7he modus1operandi of the appellant in operating through the ' obbers from different locations has resulted in fictitious

trades / self trades %here the buyer and the seller are the same party$ +uch trades create artificial volume in the traded

scrip and send %rong signal to the lay investor %ith regard to trading in the scrip$ 7he !oard has come to a definite finding

that the appellant had e4ecuted self trades on the day of listing for .,((,>.) shares %hich %as >$(8* of its total

6uantity$$D

@"f the appellant %as operating through obbers from different terminals, he should have placed some mechanism in place to

ensure that his trades do not result in self trades$ +imply because the number of such self trades is not large by itself cannot

ustify e4ecution of self trades$J

%he only see/in" di((erence -et=een the case at hand and the a-ove re(erred case is that Adroit has, as

a stock -roker, traded (or A7G in respect o( the i/pu"ned trades, =hereas in >0 $ecurities case, the

-roker had indul"ed in proprietary trades.

%he >on-le $A%, =hile upholdin" the (indin" o( $&B) =ith respect to violation o( re"ulation


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counter orders placed (ro/ another ter/inal. %his contention cannot -e accepted. As held -y the

>on-le $A%, the noticees can e/ploy any /odusDstrate"y (or placin" orders, -ut the sa/e should -e

=ithin the contours o( la=. Further, their /odus or strate"y should -e structured or desi"ned in such a

=ay to avoid sel( trades and other prohi-ited trades in the securities /arkets. )deally, the syste/s o( the

noticee should have taken care o( such a contin"ency. As o-served -y the >on-le $A%, a person

adoptin" any -usiness /odel (or tradin" in the securities /arket should ensure that such /odel

co/plies =ith the re"ulatory (ra/e=ork. >avin" (ailed to ensure the sa/e, the noticees cannot -e

e'cused. As re"ards the trades =hich e'ecuted throu"h orders placed in the sa/e ter/inal, the

alle"ation is that ;1 sel( trades throu"h sa/e ter/inal =ere e'ecuted (or 1,1; shares. %he A has

"iven a (indin" that only 44 shares had /atched (ro/ the sa/e ter/inal. %his (indin" is /ade only on

the -asis o( the su-/issions /ade -y the noticees. No atte/pt has -een /ade -y the A to reach to

the -otto/ o( the /atter as to =hy the (i"ure in the $CN, i.e., 1,1; shares in ;1 sel( trades is

incorrect and =hy the noticees contention o( 44 shares in 44 trades is correct. )t is incorrect to li/it

sel( trades to those =hich are -ein" conducted (ro/ the sa/e ter/inal. All the trades in =hich the

sa/e client id appears -oth on the -uy and sell le" are sel( trades as the econo/ic conse9uences are the

sa/e even i( the ter/inals are di((erent. %he A is co/pletely o(( the /ark in considerin" sa/e

ter/inal trades only as sel( trades. ), accordin"ly (ind Adroit and A7G "uilty o( havin" contravened

the provisions o( the !F%! Re"ulations alle"ed a"ainst the/. Further, the stock -roker Adroit has

also not co/plied =ith Clause A o( code o( conduct (or stock -rokers prescri-ed under the $tock

Brokers Re"ulations.

1*on-le $A% *i.e., +!" cannot infer that the broer is a%are of manipulation carried out by a client merely

because the broer has acted as a broer for the client. As discussed a-ove, this is a case =here the stock

-roker had placed orders (or its client =hich resulted in sel( trades. As o-served -y the >on-le $A% in

the case o( >0 $ecurities, Adroit -ein" the stock -roker, should understand the i/plications o(

e'ecutin" sel( trades done throu"h its ter/inals. %he (ictitious nature o( sel( trades have -een

e'plained a-ove =ith reliance on the o-servations o( the >on-le $A% /ade in the /atter o( >0

$ecurities. )n vie= o( the o-servations, -oth the noticees *Adroit as the stoc broer and AKG as its client



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are responsi-le (or e'ecutin" sel( trades. %he a-ove contention o( Adroit is there(ore dis/issed, as

-ein" =ithout /erit, in this case.

1;

order passed by wtm u/s 15-i (3) of the sebi act, 1992 in respect of adroit financial services...

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