Order in the matter of Alka Securities Limited

1. The Securities and Exchange Board of India (hereinafter referred to SEBI), vide an ad interim ex-parte Order dated April 29, 2010 prohibited the stock broker, Alka Securities Limited (hereinafter referred to as ASL) from buying, selling or otherwise dealing in securities on behalf of its clients, in any manner, whatsoever, either directly or indirectly, until further orders. The said Order was passed, as it was observed that ASL had prima facie violated SEBI Order dated July 28, 2009 wherein ASL was inter alia prohibited from taking fresh clients, till further orders. On appeal, the said Order was set aside by the Hon’ble Securities Appellate Tribunal (hereinafter referred to as the Hon’ble SAT), vide Order dated May 10, 2010 and liberty was granted to SEBI to pass fresh order in accordance with law after hearing ASL. Pursuant to the said Order of the Hon’ble SAT, ASL was afforded an opportunity of hearing on May 17, 2010, when Mr. Sean Wasoodean, Advocate, Mr. Mahendra Pandey and Ms. Alka Pandey appeared on behalf of ASL and made submissions. As further materials have been brought out during the follow up done to ascertain the bonafides of the contentions of ASL, a notice dated July 9, 2010 was sent to ASL asking it to show cause as to why suitable directions, under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act), should not be passed against it.

The allegation in the notice in brief is that ASL, on March 30, 2010, had executed a buy order for 500 shares in the shares of Mangalore Refinery and Petrochemicals Limited at the National Stock Exchange of India Limited (NSE) for the client, Mr. Anna Adhikrao Gaikwad (client code : A0015). On inquiry, ASL, faxed a letter to NSE on April 6, 2010 informing that the said client was an old client and that the Uniform Client Code (UCC) of the said client had been uploaded. In the meanwhile, ASL had executed a sell order for 25 shares of Mangalore Refinery and Petrochemicals Limited for the said client on April 7, 2010. ASL, vide letter dated April 7, 2010 provided the Know Your Client (KYC) forms of the said client with Mahesh Kothari Shares & Stock Brokers Limited (MKSSB) to NSE along with the UCC snapshot on April 8, 2010, giving the date of upload as December 14, 2007 at BSE. On April 6, 2010, ASL executed a buy order and a sell order for 1000 shares each in the scrip, Brandhouse Retails Limited (trade value Rs.76,237) for another client namely, Mr. Jayant Shah (Client Code: J0010). The client code details for this code were not uploaded on NSE.

NSE followed up with ASL about the details of the client code following which ASL uploaded the client details on April 13, 2010. After verifying the details, NSE sought explanation from ASL on the same day for taking in a fresh client, in violation of the SEBI Orders dated July 28 2009 as confirmed on October 16, 2009. On April 19, 2010, NSE informed SEBI of the aforesaid acts of ASL and the explanations provided by ASL on the same. SEBI, after considering NSE’s intimations about the conduct of ASL along with ASL’s explanations and responses given to NSE, found that the client codes of the said two clients were created on NSE on April 3, 2010 and April 13, 2010. It was also noted that, besides the creation of new trading accounts for the said clients on April 3, 2010 and April 13, 2010, ASL also executed trades on behalf of these clients on March 30, 2010, April 6, 2010 and April 7, 2010 in violation of the said SEBI Order. The above acts of ASL were prima facie in violation of SEBI Orders dated July 28, 2009 and October 16, 2009 and hence the notice. The alleged violations committed by ASL were explained in detail in the notice.

In response to the said notice, ASL vide letter dated July 15, 2010 had sought inspection of certain document. Though, SEBI provided opportunities of inspection to ASL on July 26, 2010 and August 10, 2010, ASL did not avail the opportunities. ASL also did not avail of the hearing opportunities afforded on September 23, 2010 and November 24, 2010.

2. In the meantime, ASL submitted an application for passing of a consent order in terms of the SEBI Circular dated April 20, 2007. However, having regard to the facts and circumstances of the case, the said application was rejected in terms of the aforesaid circular, and the same was communicated to ASL, vide SEBI letter dated April 18, 2011. The allegation in the notice was that ASL, as an intermediary (stock broker) had prima facie violated SEBI Orders as mentioned in detail therein. The notice was for issuing suitable directions under Sections 11, 11(4) and 11B of the SEBI Act including directions for debarring ASL from accessing the securities market and prohibiting from buying, selling or otherwise dealing in securities for an appropriate period and such other directions as deemed appropriate. The Hon’ble SAT, vide Order dated May 10, 2010 directed SEBI to pass a fresh order in accordance with law after hearing ASL. In the facts and circumstances of the case and in the interest of justice, the appropriate action would be to initiate an enquiry proceeding against ASL under the provisions of Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Therefore, without considering the matter on merits, the present proceeding is hereby concluded as directed hereinbelow.

3. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B thereof, hereby dispose of the show cause notice dated July 9, 2010 issued to the stock broker, Alka Securities Limited (Member, National Stock Exchange of India Limited).

4. The disposal of the show cause notice dated July 9, 2010 is without prejudice to the rights of the Securities and Exchange Board of India to initiate enquiry proceedings in accordance with the provisions of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 for the alleged violations, as mentioned in the aforesaid notice. A separate Order would be issued for appointing a Designated Authority in this regard and the Designated Authority shall expeditiously complete the enquiry as early as possible but not later than six months from the date of such appointment.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JULY 1, 2011