Order in the matter of M/s Alka Securities Limited

1. On noticing sudden rise in the price and traded volumes coupled with large off-market transfers in the shares of Alka Securities Limited, the Securities and Exchange Board of India (hereinafter referred to as SEBI) had examined the dealings in the shares of the said company for the period between November 2008 and March 2009. Based on the preliminary findings, SEBI, vide an ad interim ex-parte order dated July 28, 2009 had issued various directions. One of the directions was to prohibit the stock brokers, Alka Securities Limited (hereinafter referred to as ASL) and Mahesh Kothari Share & Stock Brokers Private Limited (hereinafter referred to as MKSBPL) from buying, selling or dealing in any securities on their respective proprietary/own accounts, until further orders. They were also directed not to take fresh clients, with immediate effect until further orders. Thereafter, the said order was confirmed by SEBI, vide order dated October 16, 2009, as stated therein, after affording an opportunity of hearing. Subsequently, the order dated October 16, 2009 was inter alia challenged by ASL and MKSBPL before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as SAT). The Hon’ble SAT, vide order dated November 11, 2009 disposed of the said appeal with a direction to SEBI to conclude the investigations expeditiously but not later than March 31, 2010. It was also observed in the said order “Appellants through their counsel undertake to co-operate with the investigating officer and the independent auditor.”

2. Thereafter, National Stock Exchange of India Limited (hereinafter referred to as NSE), vide electronic mail dated April 19, 2010 informed SEBI that ASL was observed to have traded for two new clients, namely Mr. Jayant Shah (Permanent Account Number-BMMPS4001C) and Mr. Anna Adhikrao Gaikwad (Permanent Account Number-AGRPG9033E) on April 6, 2010 and April 7, 2010. It was stated that ASL informed NSE that the said clients were the clients of MKSBPL and that the trades (on behalf of the said clients) were inadvertently executed by ASL at NSE. Subsequently, NSE, vide electronic mail dated April 27, 2010 forwarded the trade details of ASL executed on behalf of Mr. Anna Adhikrao Gaikwad, on March 30, 2010. The trade details (in brief) of ASL executed on behalf of the aforesaid clients, as received from NSE, are given below:

Client Trade Client Name Symbol Order No Trade No Traded Quantity code Date ANNA ADHIKRAO 2010033034303851 2010033033854880 A0015 30-Mar-10 MRPL 500 GAIKWAD J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600292397 45 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600292398 1 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600292399 200 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600292400 4 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600293470 470 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040600646523 2010040600293471 280 J0010 JAYANT SHAH 6-Apr-10 BRANDHOUSE 2010040603435029 2010040602267372 1,000.00 ANNA ADHIKRAO A0015 7-Apr-10 MRPL 2010040733534162 2010040733410987 25 GAIKWAD

3. Further, NSE had also forwarded to SEBI, the details of Unique Client Codes (hereinafter referred to as UCC) in respect of the aforesaid clients. The said details are shown below:

UCC creation of J0010 (in respect of Mr. Jayant Shah):

UCC creation of A0015 (in respect of Mr. Anna Adhikrao Gaikwad):

4. The above charts establish that the UCC- A0015 for Mr. Anna Adhikrao Gaikwad was created on April 3, 2010 and UCC -J0010 for Mr. Jayant Shah was created on April 13, 2010. This was despite the SEBI order prohibiting ASL from taking fresh clients. Thus, in short: i. ASL opened trading accounts for the said clients on April 3, 2010 and April 13, 2010. ii. ASL had also traded for the said clients on March 30, 2010, April 6, 2010 and April 7, 2010. 5. The aforesaid acts of ASL were in total contravention of SEBI order dated July 28, 2009 (which was subsequently confirmed on October 16, 2009). The very act of ASL in taking new clients when there was a specific prohibition from SEBI cannot be taken lightly. Thus, ASL as a stock broker had acted in utter disregard to the Order of SEBI. SEBI as a Regulator shall view such willful disobedience seriously. Such an intermediary cannot be allowed to function in the market and invite stringent action. SEBI as a Market Regulator does not expect the intermediaries to flout its directions and orders issued in the interest of the securities market, as has happened in this case.

A stock broker is one of the key market functionaries who deals for his clients in the stock exchange trade mechanism and under the regulatory supervision of SEBI. I note that the Broker had stated to NSE that it had mistakenly transacted for the clients. The said plea is liable to be rejected in-limine. How could ASL take such plea when the Order of SEBI specifically prohibited it from taking up such activities? Further, the Broker besides uploading client details for the two new clients on the stock exchange platform also executed number of trades on behalf of the clients as stated in above paragraphs. SEBI also found that ASL had issued contract note to Mr. Jayant Shah in respect of a trade mentioned in the table at paragraph 2 above in this order. Both these acts of ASL, therefore cannot be said to be unintentional or not premeditated. In view of the above, the claim of ASL that creating unique client codes and trading on behalf of the new clients was a mistake deserves to be dismissed outright. I also note that the non co-operative attitude of ASL in the on-going SEBI inspection was not that expected from a prudent market intermediary.

ASL unduly delayed the data submission and back office access to SEBI’s inspection. Thus, ASL not only adopted delaying tactics in the inspection process but has also deliberately violated the order of SEBI dated July 28, 2009 (which was subsequently confirmed on October 16, 2009). In this regard, I also note the observation of the Hon’ble SAT in the appeal (no. 60 of 2010) filed by ASL. While disposing of the said appeal, the Hon’ble SAT, vide order dated April 26, 2010, had inter alia observed “It is however, made clear that in case the appellants intermingle their own securities or any security other than that of their existing clients in the newly opened account or do not to co-operate in the ongoing investigations/inspection, it shall be open to the Board to proceed against them accordance with law.” The blatant and willful disobedience of the Order of SEBI by ASL (as a stock broker) requires immediate intervention of SEBI, as ordered below in this Order. Continuance of a market intermediary to whom the sanctity of the legal framework governing the securities market does not seem to matter in the least seriously compromises the integrity of the market itself.

6. In view of the foregoing, I, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B thereof, hereby prohibit the stock broker, Alka Securities Limited [Permanent Account Number-AAACA4835E], Member, National Stock Exchange of India Limited, from buying, selling or otherwise dealing in securities on behalf of its clients, in any manner, whatsoever, either directly or indirectly, until further orders.

7. This Order shall come into force with immediate effect.

8. Alka Securities Limited may file its objections, if any, to this Order, within fifteen days and, if it so desires, avail an opportunity of personal hearing before the Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051, on a date and time to be fixed on a specific request.

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

PLACE: MUMBAI DATE: APRIL 29, 2010