Order in respect of M/s G R Pandya Share Broking Limited

IN RESPECT OF M/S G. R. PANDYA SHARE BROKING LIMITED IN THE MATTER OF BSEL INFORMATION SYSTEMS LIMITED. 1. SEBI had conducted investigation in respect of the trading in the shares of BSEL Information Systems Limited (hereinafter referred to as 'the company’) due to sudden spurt in volume and price of the shares of the company during the first week of April 1998. The period from December 01, 1998 to April 30, 1999 was taken up as period of investigation (Investigation Period) in the matter. 2. The Investigations had revealed that during the Investigation Period the price of the scrip showed a rising trend from December 1, 1998 to March 3, 1999 and, thereafter, it showed a declining trend. On December 1, 1998, the price of the scrip had opened at `36.70. The lowest price of the scrip during the Investigation Period was `36.50 on December 1, 1998 and it had reached a high of `158.20 on March 3, 1999. The volumes also showed similar trend. The traded volume increased from 5,100 on December 1, 1998 to 70,800 on January 01, 1999 then declined to the level of 7,400 on April 29, 1999. M/s. G R Pandya Share Broking Ltd., a member of the Bombay Stock Exchange Limited (BSE) a stock broker having SEBI Registration No. INB010997538 was one of the stock brokers who were the top gross buyers as well gross sellers in the scrip during the Investigation Period.

3. On the basis of findings of the said investigation, SEBI, vide an order dated September 30, 2004 initiated an enquiry against M/s. G R Pandya Share Broking Ltd (the noticee) in accordance with the SEBI (Procedure for holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (Enquiry Proceedings Regulations) to enquire into the contravention of provisions of regulation 4(a),(b),(c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘PFUTP Regulations’) and clause A(3) and A(4) of Code of Conduct for stock brokers as specified in Schedule II under regulation 7 of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as ‘Stock Brokers Regulations’). 4. After repeal of the Enquiry Proceedings Regulation, the Enquiry Officer (hereinafter referred to as 'the Designated Authority') continued with the proceedings in view of the provisions of regulation 38 (2) SEBI (Intermediaries) Regulations, 2008 ('the Intermediaries Regulations'). The Designated Authority submitted his report (Report) dated November 26, 2010 in terms of regulation 27 read with 38(2) of the Intermediaries Regulations.

In his Report the Designated Authority found that the noticee had created volumes during the Investigation Period by indulging in cross deals and fictitious trades and tried to influence the price of the scrip and, thereby, contravened provisions of regulation 4(a),(b),(c) and (d) of the PFUTP Regulations and Clause A(3) and A(4) of Code of Conduct for stock brokers as specified in Schedule II under Regulation 7 of the Broker Regulations and recommended that the certificate of registration granted to the noticee as a stock broker be suspended for a period of one month. 5. Thereafter, a show cause notice (SCN) dated December 13, 2010 was issued to the noticee enclosing therewith a copy of the Report in terms of regulation 28(1) read with 38(2) of the Intermediaries Regulations. By this SCN the noticee was called upon to show cause as to why action should not be taken against it as recommended by the Designated Authority or higher penalty should not be imposed as deemed fit by the Competent Authority. The noticee did not file any reply to the SCN despite service of the same upon him and subsequent reminder thereto dated January 12, 2011. A notice dated February 14, 2012 to provide opportunity of personal hearing before me on March 06, 2012 was served upon the noticee.

However, the noticee did not avail the opportunity of personal hearing. I note from records that the noticee also failed to co-operate with the investigating team despite correspondences exchanged and summons issued. Further, the noticee did not avail the opportunities to file replies and appear for personal hearing before the Designated Authority despite of services of relevant notices. In the facts and circumstances, I am of the view that enough opportunity to file reply to SCN and opportunity of personal hearing has been provided to the noticee and it does not want to avail the opportunity to submit its defense to the SCN. It is presumed that it has nothing to submit in the matter, I, therefore, proceed in the matter, on the basis of material available on record.

6. The important findings and recommendation in the Report of the Designated Authority are as under: 6.1. During the Investigation Period, the noticee was top gross buyer as well as seller in the scrip of the company. It had purchased 5,30,600 shares and sold 5,67,200 shares which constituted about 29% and 31% of gross buy and sell volume in the scrip at BSE. On 25 days the price of the scrip had opened at more than 4% compared to the previous day’s closing price. During the said 25 days, the noticee was buying broker in the first trades on 5 days when the buy order rate placed by the noticee was higher than or equal to the opening rate. 6.2. There were 48 instances where the orders entered by various stock brokers had influenced the price of the scrip and the price had increased by more than `1.50 from the previous trade price. Out of these 48 instances, the noticee had been entering buy orders at such higher price in 30 instances. In majority of instances the sell orders were entered prior to entering of the buy orders and later on buy orders were entered at higher rates by the stock broker including the noticee. On certain other days as well the price of the scrip had risen intra-day as compared to opening price of the scrip. Amongst these days the noticee was the buying stock broker in 16 out of 42 instances where the stock brokers had entered buy orders at higher prices.

6.3. The noticee placed buy orders for large quantity of shares (trades of 2,500 shares or more). It bought total 68,300 shares by placing such buy-orders. On various occasions (at least 4) the noticee placed buy orders for 10,000 shares. These purchases of the noticee constitute about 30.64% of total large buy trades of 2,500 shares or more. The noticee was also the major selling stock broker for large quantity of shares (trades of 2,500 shares or more). It sold total of 93,300 shares in such large trades. For instance on 25/1/99, the noticee placed a sell order for 25,000 shares, on 25/2/99 a sell order for 5,600 shares, on 1/3/99 a sell order of 10,000 shares. The sell orders of the noticee constitute about 41.86% of total large sell trades of 2,500 shares or more.

6.4. The noticee had indulged in cross deals and fictitious trades. On 175 occasions the noticee was buying as well as selling stock broker. It executed majority of its trades (32 occasions) in its own account (client code T008) out of which, on 31 occasions even buying and selling terminal was the same. It was putting two different codes for trading in a particular account with mala fide intention. The noticee (client code T008) was counter party for almost all the clients in buying as well as selling transaction during the Investigation Period. The following two tables shows a few instances of such cross deals and fictitious deals where noticee is both the buying and selling client and is at least a counter party:

A. Examples of trades where noticee is the buying as well as selling client TRD BME SME Qty Rate Date BClien SClient BCA SCA BT ST ID M M (Paise) t 7553 222 222 200 3800 3/12/98 T008 T008 30 30 3 3 7815 222 222 100 4200 11/12/98 T008 T008 30 30 3 3 7816 222 222 100 4200 11/12/98 T008 T008 30 30 3 3 8268 222 222 300 5600 29/12/98 T008 T008 30 30 5 5 8270 222 222 300 5600 29/12/98 T008 T008 30 30 5 5 8271 222 222 500 5600 29/12/98 T008 T008 30 30 5 5 9249 222 222 2000 8570 11/1/99 T008 T008 30 30 5 5 96 222 222 100 10210 6/4/99 T008 T006 20 20 6 5 290 222 222 200 10210 9/4/99 T006 T008 30 20 5 6 B. Examples of trades where noticee is at least a counter party TRDID BMEM SMEM Qty Rate Date BClient SClient BC SCA BT ST (Paise) A 7598 222 222 200 4100 4/12/98 V054 T008 30 30 2 3 7599 222 222 200 4100 4/12/98 V054 T008 30 30 2 3 7600 222 222 200 4100 4/12/98 V054 T008 30 30 2 3 8124 222 222 1100 4825 24/12/98 V054 T008 30 30 2 5 8269 222 222 200 5590 29/12/98 T008 R022 30 30 5 2

6.5. One of noticee's clients, Mr. Raman G. Mehta was having huge debit balance ranging from ` 17.50 lakhs to ` 43 lakhs. Thus, it is found that noticee was employing its own funds for the trades done on behalf of the said client

6.6. The noticee had created volumes by indulging in cross deals and fictitious trades and tried to influence the price of the scrip. It was responsible for creating false or misleading appearance of trading in the scrip and its dealings were carried out with the intention of artificially raising the price of the scrip and there by inducing the sale and purchase of the scrip by others. Its dealings were intended not to affect transfer of beneficial ownership but to operate as a device to inflate the price of the scrip. The dealings of the noticee resulted in reflection of price of the scrip based on non-genuine trades. 7. In view of the above the Designated Authority has found that the noticee has contravened the provisions of regulations 4(a), (b),(c) and (d) of the PFUTP Regulations and clauses A(3) and A(4) of the Code of Conduct for the stock brokers specified in Schedule II read with regulation 7 of the stock brokers regulations. The Designated Authority has therefore, recommended that certificate of registration granted to the noticee, a member of BSE, to act as a stock broker may be suspended for a period of one month.

8. For the sake of convenience the extracts of provisions under which the Designated Authority has charged the noticee are reproduced hereunder:

PFUTP REGULATIONS “Prohibition against market manipulation. 4. No person shall - (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and therby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities …..” THE STOCK BROKERS REGULATIONS. Regulation 7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II. Code of Conduct (Schedule II)- “A. General (3) Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumourss with a view to distorting market equilibrium or making personal gains. (4) Malpractices: A stock broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.”

9. I have considered the Report of the Designated Authority and the evidence relied upon by him and the relevant provisions as reproduced above. I find that the trades of the noticee as found in the Report are established. It is very clear that the large number of trades of noticee as described in the Report were done to create artificial volume and to artificially raise the price of the scrip and there by, inducing the sale or purchase of the shares of the company. The noticee was, therefore, responsible for creating false or misleading appearance of trading in the scrip. The noticee also indulged in cross deals and fictitious trades and influenced the price of the scrip. I do not find any material on record to differ from the findings of Designated Authority. I, therefore, agree with the findings of the Designated Authority. 10. I am of the view that the trades as found in the Report of the Designated Authority pose threat to the market integrity and orderly development of the securities market. In the facts and circumstances of this case, I, therefore, am of the opinion that suspension of Certificate of Registration of M/s. G R Pandya Share Broking Ltd., Member of the Bombay Stock Exchange Limited, having SEBI Registration No. INB010997538 for one month as recommended by the Designated Authority is commensurate with the violations found in the Report. 11. I, therefore, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992, read with regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the Certificate of Registration of M/s. G R Pandya Share Broking Ltd., Member of Bombay Stock Exchange Limited, having SEBI Registration No. INB010997538 for a period of one month. 12. This order shall come into force on expiry of 21 days from the date of this order. A copy of this order shall also be sent to BSE.

Date: April 24, 2012 Rajeev Kumar Agarwal Place: Mumbai Whole Time Member Securities and Exchange Board of India