Order in respect of AKG Securities and Consultancy Limited in the matter of Rushil Decor Limited

WTM/MPB/EFD-1-DRA-3/ 102 /2017 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 in respect of AKG Securities and Consultancy Limited (PAN: AAACA7549K) in the matter of trading in the shares of Rushil Décor Limited

BACKGROUND 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) upon receipt of complaints pertaining to the Initial Public Offer (hereinafter referred to as ‘IPO’) of Rushil Décor Limited (hereinafter referred as ‘RDL’ / ‘Company’) initiated investigation to ascertain whether there was any violation of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and the Rules and Regulations made thereunder and possible violation of provision of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“hereinafter referred to as ‘PFUTP Regulations’). The period of investigation was from July 07, 2011 to July 12, 2011 (hereinafter referred to as ‘Investigation Period’ / ‘IP’). During the investigation period the scrip was traded on the BSE Ltd. (hereinafter referred to as ‘BSE’) and National Stock Exchange of India Limited (hereafter referred to as ‘NSE’).

2. The investigation revealed that during the investigation period, AKG Securities and Consultancy Limited (hereinafter referred to as ‘AKG’ / ‘Noticee’) had executed self-trades on BSE through broker Adroit Financial Services Private Limited (hereinafter referred to as ‘Adroit’).

SHOW CAUSE NOTICE 3. A Show Cause Notice (hereinafter referred to as ‘SCN’) dated September 30, 2016 was issued to the Noticee in the matter of RDL stating that “you have been found in violation

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited of provisions of SEBI (PFUTP) Regulations, 2003 in relation to execution of self-trades in several earlier cases including Onelife Capital Advisors Ltd. In view of the above, you are required to show cause as to why appropriate directions as deemed fit and proper including debarring for an appropriate period under section 11(4) and 11B of SEBI Act, 1992 for repetitive nature of violations (self-trades) as mentioned above should not be issued against you”.

ALLEGATIONS IN BRIEF:

4. RDL came out with an IPO by way of an offer of 54,00,000 equity shares to the public at issue price of Rs. 72 per equity share aggregating Rs. 38,88,00,000. The scrip of RDL got listed on BSE and NSE on July 07, 2011. On the listing day, the scrip opened at Rs. 74.50 (NSE) and Rs. 81.25 (BSE) against the issue price of Rs. 72 and closed at Rs.119.50 (NSE) and 119.65 (BSE) after touching an intraday high and low of Rs. 124.05 (NSE) and Rs. 74.50 (NSE) and Rs. 124.05 (BSE) and Rs. 75 (BSE) respectively.

5. At BSE, during the investigation period, the top 10 buy clients accounted for 2,96,39,289 shares (33.61% of market volume) and top 10 sell clients accounted for 2,92,09,800 shares (33.12% of market volume). AKG had bought 73,78,507 shares of RDL (8.37 % of total market volume) and sold 73,78,607 shares of RDL (8.37 % of total market volume) during the investigation period.

6. At BSE, during the investigation period, AKG had entered into 576 self-trades for 2,67,819 shares (3.62% of total no. of shares traded by AKG). Therefore, it was alleged that AKG had created artificial volume in the scrip of RDL in the market and gave a false and misleading appearance of trading in the scrip of RDL at the exchange. Thus, it was alleged that AKG had violated the provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited

REPLY AND HEARING

7. As no reply was received from Noticee within the stipulated time mentioned in the SCN, SEBI vide letter dated November 24, 2016, reminded Noticee to submit reply to the SCN dated September 30, 2016 within 10 days from the date of receipt of said letter. Noticee vide letter dated December 05, 2016 had denied the allegation of violation of provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations and requested SEBI to provide the legible copies of following inter alia documents:

(a) Copy of the complete Investigation Report for the investigation conducted by SEBI in the scrip of Rushil Décor Limited. (b) Soft copy of the complete trade log for the trades executed by individuals/entities in the scrip of Rushil Décor Limited during the investigation period i.e. July 07, 2011 to July 12, 2011 and post investigation period i.e. July 13, 2011 to August 12, 2011 on Bombay Stock Exchange Limited and National Stock Exchange Limited. (c) Soft copy of the complete order log for the orders placed by individuals/entites in the scrip of Rushil Décor Limited during the investigation period i.e. July 07, 2011 to July 12, 2011 and post investigation period i.e. July 13, 2011 to August 12, 2011 on Bombay Stock Exchange Limited and National Stock Exchange Limited. (d) Any document/material/evidence to show our connection with the group of market operators, Rushil Décor Limited and the merchant bankers to the IPO as alleged in the captioned SCN. (e) Copy of the prospectus of Rushil Décor Limited dated June 27, 2011 for the IPO. (f) Copy of letter sent by SEBI to the Ministry of Finance when Members of Parliament Hemant Tukaram Godse and Gajendra Singh Shekawat questioned SEBI’s selective action against brokers for executing self trades.

8. SEBI vide letter dated March 22, 2017 had forwarded the following documents to the Noticee: (a) Copy of the complete investigation report with annexure.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (b) Soft copy of the complete trade log and order log for the scrip of Rushil Décor Limited during the investigation period i.e. July 07, 2011 to July 12, 2011 on BSE and NSE. (3CDs). (c) Copy of prospectus of Rushil Décor Limited dated June 28, 2011. (d) Copy of letters sent by SEBI to the Ministry of Finance with respect to self trades in response to letters sent by Members of Parliament Mr. Hemant Tukaram Godse and Mr. Gajendra Singh Shekawat.

9. In the interest of natural justice, vide notice of hearing dated May 08, 2017 an opportunity of personal hearing was granted before the undersigned to the Noticee on May 29, 2017. Noticee vide letter dated May 25, 2017 stated that SEBI during the hearing before Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’) in the matter of AKG Securities & Consultancy Limited vs. SEBI (Appeal no. 184/2015, order dated February 10, 2017) has informed Hon’ble SAT that they are working on a policy of self trades, which would assist SEBI from distinguishing intentional self-trades from un-intentional self-trades. Further, Noticee stated that in case SEBI has prepared any objective criteria to deal with self-trades, the same be provided to them. Vide said letter Noticee had also requested for the adjournment of hearing.

10. Further, in the interest of natural justice, vide notice of hearing dated May 30, 2017 an opportunity of personal hearing was adjourned to June 13, 2017. Vide said notice dated May 30, 2017 SEBI had forwarded the copy of ‘approved policy to deal with ongoing cases involving allegation of self-trades’ to the Noticee. Noticee vide letter dated June 12, 2017, had submitted its reply to the SCN. The reply in brief is as under:

(a) Noticee denied the allegation of violation of provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations. (b) There may be some quite infrequent, random and insignificant instances of self-trade while doing jobbing activities, but those were purely accidental/incidental in the ordinary course of business and not planned to be executed to manipulate trading in the scrip. The random nature of timing, quantity, dealers and partial matching with other market participants substantiates this contention. The orders are placed at the individual Terminal ID level and the orders of small quantities are placed and the Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited average life cycle from the time of placing the order to getting converted into a trade is less than 2 seconds. (c) The human involvement is very low for putting the parameters of orders for the day and the trading takes place through the server/CTCL ID and the orders are passed on to the BSE/NSE and the same are matched at the Exchange level.

The self-trades happen on account of latency in the leased lines or the satellite link to the Exchanges. The person putting the orders works on closed mechanism where he cannot know the orders which are put by the other traders, whether in the same branch or other. (d) These self-trades cannot be treated as fictitious as the same are done on the Exchange approved terminals and in the normal course of business. Balance trades are not self-trades as they are mistakenly matched on other individual terminal ID’s which is very normal trading/jobbing/arbitrage practice. (e) A self-trade can fit into the realm of Regulation 4(2)(g) of PFUTP Regulations, only if it involves intention. Intention herein would mean that at the time of entering in transaction i.e. at the time of placing the order a person had deliberately with an intention to match it with the counter order placed the order, however the person at the time of placing the order did not actually wanted to buy/sell the quantity order. The plain reading of the Regulation therefore makes it clear that entering into of a few orders without actual intent of carrying out self-trade would not amount to a trade in contravention of Regulation 4(2)(g) of PFUTP Regulations.

A transaction could be termed to be in violation of Regulation 4(2)(g) of PFUTP Regulations, only if the following criteria’s are satisfied (i) A person places an order for buying/selling without the intention of buying/selling of underlying shares. (for e.g.- an order is placed and thereafter cancelled subsequently and the same is done repeatedly) (ii) A person places an order for buying/selling and arranges to place an opposite order for same number of shares at the same price either by himself or by another person acting on his/her instructions repeatedly. (Instance of self/synchronised trades) (iii) In both the above cases, the intention of either not performing the transaction or performing the transaction without the change of beneficial ownership is necessary. (f) Not every self-trade is fraudulent or done with the intent to manipulate the market. A dealer can place the buy and sell order for the same stock in one day to get the advantage of intra-day price movement but without knowing that the orders might get matched. It is not possible for traders to prevent self-trade from occurring altogether.

Trades are executed in an exchange’s order matching systems. Once an order is accepted by the trading system, it is not possible for the trader to have control

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited over who the counter-party is at the time of matching of that trade, as the trading engine finds and matches orders based on price time priority. (g) Noticee is a jobber/arbitrager who regularly undertakes jobbing transactions of crores of rupees on any given day in multiple scrips. Noticee’s representatives give instructions based on different strategies to 8 dealers who trade through multiple terminals and therefore there is a high probability that the orders originating from these strategies interact with each other without any malicious intention. Therefore, the allegations of fraud and manipulation resulting from self-trades cannot be levelled unless they are supplemented by strong evidences / documents / information establishing intention to defraud or manipulate the market by means of self-trades, which in the present case are not supplemented. (h) SEBI in its new policy observed that intention is a Sine quo non for establishing manipulation in case of self-trades and accidental/unintentional self-trades are not covered under the said regulations.

Further it was observed that in all matters of self-trade an assessment has to be made regarding whether the said trade was intentional or unintentional on the basis of supporting evidence and the manipulation caused by indulging in self-trades should be clearly brought out. The quasi-judicial body may assess the ongoing cases involving allegations of self-trade by analyzing whether any manipulation is arising out of self-trade or any intention to enter into is evident from the material on record. If the manipulation or intent can be established the same may be proceeded with as approved, however, if no intention or manipulation is evident from the case and the only charge is mere occurrence of self-trades then the entity may be exonerated by the quasi-judicial authority. Further, while assessing the manipulative intents, the volume transacted may also be considered in addition to the other factors. (i) That SEBI itself has taken a stand that intention is a prerequisite for violation of Regulation 3 and 4 of PFUTP Regulations and unintentional self-trades are not violative of Regulations 3 and 4 of PFUTP Regulations.

Therefore the burden of proof on Noticee to prove its innocence is to just to prove that the trades executed in the scrip of RDL, resulting into self-trades, were not manipulative and this claim has to be corroborated with other factors such as impact of trades on market volume, nature of the transactions, in-depth analysis of self-trades, and other such factors. (j) The self-trades executed by the Noticee were normal jobbing transactions and there was no intention of the Noticee to execute trades in the scrip of RDL without changing the beneficial ownership of shares as alleged. (k) The trades executed by the Noticee were a result of thousands of orders and out of the said 96,999 trades at BSE only, only 576 trades resulted into the alleged self-trades in the account of Noticee.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (l) Noticee submits the following reasons to corroborate the claim that the self-trades executed by the Noticee are accidental: (i) Noticee is engaged in the business of jobbing/arbitrage in the securities market. Noticee’s arbitrageurs and jobbers regularly visit Adroit’s office and undertake jobbing transactions looking into the available opportunities. Noticee’s jobbers regularly carry out transactions of more than Rs. 100 Crores on any given day in multiple scrips depending on the market conditions and availability of arbitrage conditions. Noticee was trading and executing numerous jobbing transactions on daily basis in all scrips i.e. minimum 230 & maximum 244 scrips available for trading on NSE & BSE and RDL is not the only scrip in which transactions were done by Noticee. (ii) RDL came out with an IPO and the scrip of RDL was listed on NSE and BSE on July 07, 2011 and opened at around Rs. 74.50 on NSE and Rs. 81.25/- on BSE against the issue price of Rs. 72/-. Its intraday high and low were Rs. 124.05/-and Rs.74.50/- on NSE and Rs. 124.05/- and Rs. 75/- on BSE and it closed at Rs. 119.50 on NSE and Rs. 119.65/- on BSE.

These figures explains that the scrip was very volatile, which could yield good returns in jobbing. Being a jobber, Noticee sought good jobbing opportunities in the market and therefore looking at the high volatility in the scrip of RDL during the Investigation Period, had traded in the scrip. The days on which self-trades were executed by the Noticee were the days which witnessed high volatility in the scrip of RDL. (iii) Noticee had appointed 8 number of people as its authorised representatives who were entitled to trade on Noticee’s behalf in the scrip of RDL. Noticee was allotted multiple terminals with Adroit’s dealer to assist the authorised representatives to carry out their jobbing transactions. The representatives of Noticee formulated their own strategies and instructed Adroit’s dealers to trade in the scrips selected by them in their own permutation and combination. The alleged 576 self-trades executed by the Noticee were executed through multiple dealers sitting on different terminals. The dealer wise trading details are submitted by the Noticee. (iv) The trading pattern followed by the Noticee in the scrip of RDL was no different from the day to day trading pattern followed by the Noticee in any other scrip where Noticee had traded.

(v) The total value of all trades in RDL executed by the Noticee during the Investigation Period was Rs. 91.85 Crores i.e. a total of 3.78% of the total market volume on BSE & NSE and out of which only 0.132% of total market volume of trades have resulted into the alleged self-trades. The same clearly shows that Noticee was placing orders based on their own understanding and without any sinister motive.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (vi) During the Investigation Period, Noticee had carried out self-trades for a quantity of 2,67,819 shares which constituted 3.47% of the total trading of the Noticee and 0.130% total number of shares traded on NSE & BSE, which is very small and incapable of manipulating the market volume. Further, not on any single day of investigation period the alleged self-trades executed by Noticee contributed to more than 0.17% of the total market volume of BSE & NSE and not more that 0.304% of the total market volume at BSE. (vii) The 0.17% of self-traded quantity by the Noticee to market volume could not have influenced the price and volume of the scrip. If the Noticee would have been actually interested in artificially inflating the volumes of the scrip of RDL, then in such a case, its contribution to artificial/false trades would have been quite high so that the same could have an impact on the total traded quantity of RDL shares and thus could have increased the profit being earned by the Noticee.

The fact that no such activity was carried out, clearly shows that that Noticee had no wrong intentions and all the trades were carried out in the normal course of the business. (m) Detailed analysis of all self-trades of Noticee shows that the same were executed devoid of any manipulative intent. Noticee submit the following facts to substantiate it’s claim: (i) Noticee’s total trades executed in the scrip of RDL at BSE were 96,999 for 73,78,607 shares giving a turnover of more than Rs. 87.59 crores. Inter ID self-trades were 572 for 2,66,184 shares and same ID self-trades were 4 for 1635 shares. (ii) From the total 576 alleged self-trades during investigation period, there were only 4 self-trades which were the complete trade i.e. there was a perfect matching meaning thereby the ordered quantity and the traded quantity matched completely in which also one was of meagre 7 shares. However the rest of the 572 trades were partial trades which means that they were result of split of a single order where a single order given for higher quantity matched with the counter order of low quantity.

For e.g. on July 07, 2011 Order No. 21000021288885 of 2500 shares resulted into 20 trades out of which only 1 share got matched with a counter order no. 21000021288895, and the balance shares got matched with different entities in the exchange. (iii) There are instances where two orders of higher quantity got matched with each other for lower quantity. For e.g. on July 07, 2011 Order No. 15000018136618 of 1500 shares resulted into 16 trades and Order No. 22000026143742 of 900 shares resulted into 5 trades and both orders matched with each other for merely 25 shares.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (iv) 572 self-trades referred hereinbefore were not only the cases arising out of split of one single order but also in some instances 2 or more self-trades have arisen out of 1 single order. For e.g. on July 07, 2011 Order No. 20000017205355 of 4500 shares resulted into 33 trades out of which 800 shares and 200 shares got matched with counter orders of No. 19000017140354 and 20000017205268, and the balance shares got matched with different entities in the exchange. (v) The abovementioned facts clearly shows that the intention of the Noticee was not to match the trades but to execute trades in normal course of business however incidentally/accidently during the course of execution of trades inadvertently orders got partly matched with counter orders. (vi) Noticee’s total number of trades executed in the scrip of RDL was 96,423 out of which only 576 resulted in self-trades. In these 576 self-trades, there are 4 trades which were same ID self-trades and the rest 572 were inter ID self-trades.

Out of the meagre 4 same ID self-trades, quantity of 3 of them were just 1, 17 and 55. All these 4 same ID self-trades were partial trades. This clearly shows that the intention was not to match the trades but to genuinely execute the trades in the market. It may also be pointed out that even the alleged self-trades were at prevailing market price and there is no allegation of either increasing or decreasing the price of the scrip. (vii) In the instant case, the manner in which the orders have been put in and resulted into trades, clearly shows that there was no intention on the part of the Noticee to manipulate the scrip of RDL. It may also be clarified that in cases of securities law violation the intention of parties is immaterial, however in cases of alleged fraud the intention needs to be deciphered from the actions/circumstances. (viii) Inspite of having different dealers having different terminals at BSE, a maximum of 1,635 shares got matched during the Investigation Period on the same terminal and that also because of partial matching of trades, the same clearly shows that Noticee’s jobbers were always aware of the individual positions and always ensured that Noticee’s trades do not match in any manner, resulting into self-trades.

The same shows the high level of expertise and caution exercised by Noitcee’s jobbers in executing the transactions of the company. However, owing to the frequency and speed at which the orders were being placed by the jobbers, no coordination was possible to examine if any other jobber has put in a counter order or that a part of their unexecuted trade, still remains pending and that it would match with their own trade. It can further be seen from the order quantity that each dealer was placing orders independently as the quantities in these trades had huge difference. (ix) At the time of execution of the self-trades, Noticee had no mechanism or software to ascertain whether their trades were getting matched. Had there been Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited any process to make Noticee aware of such matching of trades, they wouldn’t have executed any self-trade in the scrip of RDL. It may be pointed out that, since there are no mechanism available for jobbers/arbitrageurs, SEBI itself has directed the stock exchanges to come out with a mechanism to curb the happening of self-trades.

Accordingly, the stock exchanges have come out with mechanism vide circulars. (x) The alleged self-trades of the Noticee constituted only 0.132% of BSE & NSE total market value in the scrip of RDL during the Investigation Period. (xi) The alleged same id self-trades of the Noticee constituted only 0.00001% of shares traded at BSE & NSE in the scrip of RDL during the Investigation Period. (xii) The percentage of the Inter ID self-trades to the total number of trades executed by the Noticee in the scrip of RDL in Adroit’s office is meagre 0.59% during the Investigation Period. (xiii) The percentage of the same ID self-trades to the total number of trades executed by the Noticee in the scrip of RDL is meagre 0.004% during the Investigation Period. (n) The impact which a self-trade can cause, can be negative only if it involves (a) large volumes, which gives a false representation of liquidity in the scrip or on the market as a whole (b) the trade is done to change the prevailing price of the scrip. In the instant case both of the negatives have not happened and therefore no negative inference can be drawn against the Noticee owing to the alleged few self-trades carried out by the Noticee.

(o) There are two types of self-trades (a) Self trade from same terminal (b) self-trade from different terminals. There is a very important distinction between the two, which goes to the root of identifying whether a particular self-trade is intentional or it has happened merely due to co-incidence. A self-trade from the same terminal or same ID self-trade is one in which buy and sell order are both put in from the same computer terminal from the same id, meaning thereby the person who is executing the buy and the sell trade is the same. However, when a self-trade occurs from different terminals or different ID’s, although the client account in which the trade is put in is the same but the terminals from which the buy and sell orders are put for the same client are different. The difference clearly suggests a huge possibility of lack of mens rea for executing a self-trade. If the trades are mistaken trade, it can be easily understood if two different individuals are putting in two different orders for the same client, however mistake for cases wherein the buy and sell trades are put in by same individual for same client would be rare.

As in the impugned case the total number of Same ID self-trades out of the total self-trades are meagre 4, it is apparent that Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited there was no intention of the Noticee to manipulate the market while trading in the scrip of RDL (p) Noticee has enjoyed no unfair advantage or benefit of any nature owing to the execution of the trades in question, nor has the same resulted in any kind of loss suffered by investors in the scrip of RDL. (q) Further, Noticee could not have manipulated the market with such negligible volume and could not have disturbed the market equilibrium because the alleged manipulative trades were miniscule in quantity as compared to the total trading. Considering the volume of the transactions in the scrip and price fluctuation in the exchanges during the period, it is clear that the said alleged self-trades neither lead to price fluctuation nor created a false appearance of trading or were tending to mislead the gullible investors. The said alleged self-trades were bonafide normal trades which got executed in ordinary course and were not designed self-trades and in no manner manipulative.

11. Ms. Rishika Harish, Advocate, Mr. Aditya Bhansali, Ms. Nirali Mehta, Company Secretary, Mr. Jitesh Maheswari and Ms. Radhika Toshniwal, Authorized Representatives (hereinafter referred to as ‘ARs’) appeared on behalf of Noticee for hearing on June 13, 2017 and made oral submissions in line of replies available on record.

FINDINGS

12. I have perused the SCN, reply and other materials on the record. On perusal of the same, the following issues arise for consideration. Each issue is dealt with separately under different headings.

(i) Whether the Noticee had entered into self-trades as alleged in the SCN? (ii) If issue no. 1 is determined in affirmative, then whether such self-trades have been entered into intentionally or accidentally or with manipulative intent? (iii) If issue no.2 is found in affirmative, then whether Noticee have violated the provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations?

13. Before moving forward, it will be appropriate to refer to the relevant provisions of PFUTP Regulations, which read as under:

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited

Regulation 3: - Prohibition of certain dealings in securities 3. No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder.

Regulation 4:-Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (b) ………..; (c) ………..; (d) ………..; (e) ……….; (f) ……….; (g) entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security;

ISSUE No. 1- Whether the Noticee had entered into self-trades as alleged in the SCN?

14. I note that Self-trades are trades executed on the stock market in which both the buyer and the seller are the same entity. Self-trades do not represent a real change in beneficial ownership of the security.

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited

15. In the SCN, it is alleged that, at BSE, during the investigation period, Noticee had executed self-trades in the scrip of RDL, the details of self-trades are as under:

Broker On Both Self No. of No. of % of Self % of Self Sum of Buy & Sell Side Trade Self days Traded Qty. Traded Qty. LTP diff. Qty. Trades to Market to total traded (INR) Vol. Qty by AKG Adroit Financial Services Pvt. Ltd. 2,67,819 576 4 0.304 3.62 -0.95

16. From the perusal of the investigation report, it is observed, at BSE that on 4 days Noticee had entered into 576 self-trades for 2,67,819 shares of RDL i.e. 3.62% of total no. of shares traded by the Noticee and 0.304% of total volume traded on market.

17. Form the submissions of the Noticee, I note that Noticee had not disputed the fact that it had executed 576 self-trades for 2,67,819 shares of RDL. However, the Noticee had contended that the said self-trades were purely accidental/incidental in the ordinary course of business and not planned to be executed to manipulate trading in the scrip.

18. I therefore find that Noticee had executed self-trades in the scrip of RDL.

ISSUE No. 2 - If issue no. 1 is determined in affirmative, then whether such self-trades have been entered into intentionally or accidentally or with manipulative intent?

19. Vide order dated July 14, 2006, Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”) in the matter of Ketan Parekh v. SEBI, stated that “…….Any transaction executed with the intention to defeat the market mechanism negotiated or not would be illegal. Whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism, will depend upon the intention of the Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited parties which could be inferred from the attending circumstances of the cases, because direct evidence in such cases may not be available……”

20. Regulation 4(2) (g) of PFUTP Regulations, provides that dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include entering into a transaction in securities without intention of performing it or without intention of change of ownership of such security. Since self-trades does not result in beneficial ownership, the same comes within the sweep of Regulation 4(2) (g) of PFUTP Regulations. Mere occurrence of self-trades cannot be considered as per se illegal in the absence of any other additional evidence to prove manipulation or intent to defraud as is done in cases of synchronized trades. Therefore, in all matters of self-trade, an assessment has to be made regarding whether the said trade was intentional or unintentional on the basis of supporting evidence, and that the manipulation caused by indulging in self-trades should be clearly brought out. It is relevant to note that SEBI has already laid down in its policy on self-trade dated May 16, 2017 (hereinafter referred to as “Policy”) that intention is a sine qua non for establishing manipulation in case of self-trades, and that accidental/unintentional self-trades are not covered under the PFUTP Regulations.

21. In order to determine the intention of the Noticee regarding execution of self-trades, following is observed from the documents available on record:

(a) I find that at BSE, during the investigation period, Noticee had bought 73,78,507 shares of RDL (8.37 % of total market volume) and sold 73,78,607 shares of RDL (8.37 % of total market volume). (b) At BSE, on 4 days, out of 96,996 Noticee’s trades, Noticee had entered into 576 self-trades (0.59% of total no. of Noticee’s trades) for 2,67,819 shares of RDL i.e. 3.62% of total no. of shares traded by the Noticee and 0.304% of total market volume. The sum of LTD difference was Rs. -0.95. (c) The period of investigation was from July 07, 2011 to July 12, 2011. The scrip of RDL got listed on BSE and NSE on July 07, 2011. I note that the trading volume during the investigation period was very high as compared to the trading volume after the investigation period. This was due to the high listing day volume of 3,71,43,598 shares

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (BSE) and 4,96,10,018 shares (NSE) on July 07, 2011. On the listing day, the scrip price opened at Rs. 81.25 (BSE) and Rs. 74.5 (NSE) and closed at Rs. 160.6 (BSE) and Rs. 160.85 (NSE) at the end of investigation period. At BSE, the average traded volume per day during the investigation period was 2,20,46,620 shares and post investigation period was 61,50,542 shares. At NSE, the average traded volume during the investigation period was 2,93,68,553 shares and post investigation period was 89,40,783 shares. Thus, I find that self-trades executed by the Noticee in the scrip of RDL was at the time of listing when liquidity in the scrip was high. (d) From the trade and order log as well as from the submission of the Noticee, I note the following that: (i) At BSE, total trades executed by the Noticee were 96,996 trades for 73,78,607 shares. Out of 96,996 trades executed by the Noticee, 576 alleged trades were self-trades i.e. 0.6% of total trades executed by the Noticee are self-trades. Further, out of 576 alleged self-trades, 572 self-trades for 2,66,184 shares were executed through different terminal ID’s and 4 self-trades for 1,635 shares were executed through the same terminal ID.

(ii) Some self-trades were partial trades i.e. they were result of split of a single order where a single order given for higher quantity matched with the counter order of low quantity For e.g. on July 07, 2011 Order No. 21000021288885 of 2500 shares resulted into 20 trades out of which only 1 share got matched with a counter order no. 21000021288895, and the balance shares got matched with different entities in the exchange. (iii)In some instances 2 or more self-trades have arisen out of 1 single order. For e.g. on July 07, 2011 Order No. 20000017205355 of 4500 shares resulted into 33 trades out of which 800 shares and 200 shares got matched with counter orders of No. 19000017140354 and 20000017205268, and the balance shares got matched with different entities in the exchange. (e) I also note that no adverse observations regarding synchronized trading, reversal trading, LTP contribution or creation of New High Price etc. has been brought out in the investigation report. In addition to same, no fraudulent pattern / modus operandi was noted in the investigation report regarding such self-trades.

(f) From the submission of the Noticee, I note the following:

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited (i) That Noticee was carrying out jobbing transactions on a daily basis in approximately 230-244 scrips on NSE and BSE. Self-trades in the scrip of RDL occurred while doing jobbing activities and were purely accidental / incidental in the ordinary course of business. (ii) Noticee had 8 authorized representatives to trade in the scrip of RDL. The Noticee was allotted multiple terminals with Adroit’s dealer. These 8 authorized representative formulated their own strategies and instructed the Adroit’s dealers to trade in the selected scrips in their own permutation and combination. These authorized representatives place the order with multiple dealers sitting on different terminals i.e. the alleged 576 self-trades were executed by the Noticee through multiple dealers. (iii)The day to day trading pattern of the Noticee in the scrip of RDL was same as of other scrips. (iv) Out of total 576 alleged self-trades, there were only 4 self-trades which were the complete trade i.e. the ordered quantity and the traded quantity matched completely. The rest 572 self-trades were partial trades which means that they were result of split of a single order where a single order given for higher quantity matched with the counter order of low quantity.

22. Considering the order placing pattern and other circumstances mentioned at para 21 above all seen together, it would be difficult to conclude that the impugned self-trades are done intentionally. The circumstantial evidences above described do not rule out the probability of the trades are accidental. In view of the absence of countervailing circumstances to indicate that the trades were motivated by intention, I am constrained to observe that these trades are accidental self-trades. However, I hasten to add that in a scenario where the accidental self-trades are huge in number and has considerable impact on the price and volume of the scrip which is subjected to self-trades, the price and volume impact may indicate that the trades were so designed to appear accidental but were in fact motivated by the manipulative intention of creation of false volume or false price ascension or descension. However, in this case, the total number of self-traded shares by the Noticee was 0.304% of total market volume and the sum of LTP difference was Rs. -0.95. Given these facts, it would be difficult to believe that the impugned self-trades

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited have been entered with manipulative intention of creation of false volume or false price ascension or descension while contriving to make it appear accidental. Incidentally I observe that there is no allegation of price manipulation in the instant case. In view of this, I observe this case merits extension of benefit of doubt in respect of the allegation raised in the SCN.

ISSUE No. 3- If issue no.2 is found in affirmative, then whether Noticee have violated the provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of PFUTP Regulations?

23. In view of the findings above, I am of the considered view that the Noticee is entitled for a benefit of doubt in respect of an alleged violation of provisions of regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a) and 4(2)(g) of the PFUTP Regulations.

ORDER

24. In the facts and circumstances of the case, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992, hereby dispose of the show cause notice dated September 30, 2016 issued to AKG Securities and Consultancy Limited without any directions.

25. The order shall come into force with immediate effect.

-Sd- DATE: NOVEMBER 30, 2017 MADHABI PURI BUCH PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of AKG Securities and Consultancy Limited in the matter of M/s Rushil Décor Limited