Order in the matter of trading by connected entities in respect of Astute Commodities & Derivatives P. Ltd

For SEBI : Mr. Aliasgar Mithwani, Deputy General Manager Mr. Siddhesh Lotlikar, Assistant General Manager Mr. Pradeep Kumar, Legal Officer Mr. Parag Sinha, Presenting Officer ORDER Under Sections 11, 11(4) and 11 B of the Securities and Exchange Board of India Act, 1992 1. Securities and Exchange Board of India (“SEBI”) conducted investigation into the irregular trading of several scrips including trading in the shares of Bang Overseas Ltd. (“Bang”) for the period March 1, 2008 to February 28, 2009. The shares of Bang are listed on Bombay Stock Exchange Ltd. (“BSE”) and National Stock Exchange of India Ltd. (“NSE”).

2. Investigations revealed that the price of Bang increased from Rs.99.75 on March 17, 2008 to Rs.301.60 on June 17, 2008 on the BSE indicating a price rise of Rs.201.85, i.e. 202.36% in 61 trading session with 1,50,02,746 shares traded in 1,42,654 trades. It was alleged that the buy trades of Astute Commodities & Derivatives P. Ltd. (now known as BP

Comtrade P. Ltd., hereinafter referred to as ‘the noticee’), along with certain other entities, had an impact on the price of the scrip. The noticee had traded through the member BP Equities P. Ltd. which is a group company of the noticee. During the period, there were totally 28,542 buy trades which were executed at a price higher than last traded price and in the case of 1,258 buy trades, the noticee was involved.

3. The acts of the noticee were thus alleged to be in violation of Regulation 3(a), (b), (c) & (d) and Regulation 4(1), 4(2) (e) of the PFUTP Regulations. Accordingly, a notice dated July 26, 2011(hereinafter referred to as the ‘SCN’) was issued to the noticee asking it to show cause as to why directions in terms of Sections 11, 11(4) and 11B of the SEBI Act, including debarring it from accessing the securities market and prohibiting it from buying, selling or otherwise dealing in securities for an appropriate period of time, should not be issued against it.

4. The noticee, vide letter dated August 23, 2011 replied to the SCN and sought an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticee on December 23, 2011, when Mr. Joby Matthew, Mr. Ravi Ramaiya and Sandeep Jain the authorized representatives of the noticee, appeared before me and made submissions.

5. The submissions of the noticee, inter alia, are: a) The noticee never carried out any transaction with an intention to manipulate the price of the security but transacted only to obtain reasonable returns by trading in that security. b) Of the total buy volume of 1,50,02,746 shares the noticee purchased 4,06,326 shares which is 2.71% of the total volume. Of this, only 88,977 shares were traded on the price above the LTP which means that only 0.59% of the volume have resulted in a price rise of Rs.419. It further means that the remaining buy trades have resulted in either a price reduction or have traded on the LTP. The total volume of such trades is 3,17,349 shares which comprises of 78% of the volume. c) The data provided by SEBI as annexure to SCN shows that in matched trades, sell order price of counterparties is higher than the buy order price placed by the noticee. As a sell order with a higher price cannot match with a buy order of a lesser price. d) They have not executed synchronized/ reversal/ structured trades, not part of connected entities and are not even major contributors to the volume.

6. I have carefully considered the SCN, replies and submissions of the noticee and other material on record. The issue that arises for my consideration is whether the noticee traded in the scrip of Bang in a manner that led to increase in the price of the scrip, which is in violation of Regulation 3(a), (b), (c) & (d) and Regulation 4(1), 4(2)(e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 read with Section 12A (a), (b) & (c) of SEBI Act, 1992.

7. Regarding the data anomaly pointed out by the noticee (refer para 5 (c) above), I have perused the details provided in the SCN wherein the sell order price of the counter party is higher than the buy order price placed by the noticee. Given below in Table I, are few such transactions noted by me : TABLE 1 Trade Trade Trade Trade Buy Order No Buy Buy Buy Trade Sell Order No Sell Sell Sell Rate Date No Price Time Order Order Order Qty Order Order Order Diff Time Qty Rate Time Qty Rate 2-Apr-08 4149 146.15 13:59:58 7406500000329921 13:59:49 2000 146.05 73 28700600020237438 13:59:58 200 146.10 -0.05 2-Apr-08 4221 147.30 14:00:20 7406500000329921 13:59:49 2000 146.05 73 307320100000114379 13:36:31 100 147.30 -1.25 2-Apr-08 4225 147.30 14:00:22 7406500000329921 13:59:49 2000 146.05 25 24803600020242562 14:00:21 25 147.05 -1.00 2-Apr-08 4394 147.60 14:00:56 7406500000329921 13:59:49 2000 146.05 200 32823200000981325 14:00:56 200 147.60 -1.55

I note form the aforesaid table that the buy order rate and buy order time in Table 1 have been constant at Rs.146.05 and 13:49:59 respectively, whereas the trade price has varied from Rs.146.15 to Rs.147.60. Upon reading of Table 1, I have come to the conclusion that the Table 1 contains details of only the first order of the Noticee. The subsequent revisions/ updations made by the Noticee are not reflected in Table 1. In order to understand the issue further, I have also perused the details of the relevant orders placed by the noticee and the counter party for the aforesaid order numbers. The relevant extracts, wherein the details pertaining to the orders placed by the noticee are given, are shown in Table -2 below: TABLE 2 Order No Rate Quantity Revealed Order Order Time Error Error AUD Qty Date Code Name Code 7406500000329921 146.05 2000 200 2-Apr-08 13:59:49 0 Success A 7406500000329921 146.15 0 200 2-Apr-08 13:59:53 0 Success U 7406500000329921 147.30 0 200 2-Apr-08 14:00:20 0 Success U 7406500000329921 147.30 0 108 2-Apr-08 14:00:25 282 U 7406500000329921 147.30 0 110 2-Apr-08 14:00:27 0 Success U 7406500000329921 147.60 0 110 2-Apr-08 14:00:32 0 Success U 28700600020237438 146.10 200 200 2-Apr-08 13:59:58 0 Success A 307320100000114379 147.30 100 100 2-Apr-08 13:36:31 0 Success A 24803600020242562 147.05 25 25 2-Apr-08 14:00:21 0 Success A 32823200000981325 147.60 200 200 2-Apr-08 14:00:56 0 Success A I note from Table 2, that the noticee has revised the rate of the same buy order (no. 7406500000329921) 4 times from Rs.146.05 to Rs.147.60 at various time intervals. The noticee placed an order for 2,000 shares at 13:59:49 @ Rs.146.05. Subsequently, the noticee at 13:59:53 updated the order rate to Rs.146.15. Thereafter, the seller placed an order for 200 shares at 13:59:58 @146.10 and thus as shown in Table 1, a trade for 73 shares @146.15 got executed. I find that same is the case for the remainder of the trades executed by the noticee.

8. Further, I note from Annexure 1 to the SCN that the noticee executed a total of 8824 buy trades in the scrip of Bang, of which 1032 trades were below the last traded price, 6534 trades were at the last traded price and 1258 trades were above the last traded price. These numbers do not indicate a concerted effort on the part of the noticee to raise the price of the scrip.

9. In addition, I find that there is no substantial evidence in the SCN suggesting that the noticee has entered into synchronized/ reversal/ structured trades thereby increasing the price of the scrip of Bang. Thus the charges against the notice do not stand established.

10. In light of the above, I am therefore inclined to absolve the noticee from alleged violation of the PFUTP Regulations read with the SEBI Act, and also dispose of the SCN without any further directions.

DATE : MAY 11, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA