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8/9/2019 Adjudication Order in respect of Todi Securities Pvt. Ltd
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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. RA/JP/02/2015]
________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,
1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In respect of:
Todi Securities Pvt. Ltd.
(Member of United Stock Exchange of India Ltd.)
SEBI Registration No. INE27400736
BACKGROUND
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) upon
reference for unusual trading pattern of USD / INR in currency derivatives segment
and sharp increase in trading volume through self trades at United Stock Exchange of
India Ltd (USE), had conducted inspection of books of accounts and other records of
the Todi Securities Pvt. Ltd. - Stock Broker / Member of USE having SEBI
Registration No. INE27400736 (hereinafter referred to as 'TSPL / the Noticee)
during January 23 to 25 of 2012 at the registered office of Noticee. The period
covered under the inspection was from 01, April 2011 to 31, October 2011 (Inspection
Period).
2. It was examined under the inspection that the Noticee had indulged in executing large
self trades with an intention to artificially raise the volume in USD-INR contracts and
to create misleading appearance of trading in the currency derivatives segment at
USE during the inspection period, which were manipulative / unfair / fraudulent in
nature; and by so doing, allegedly the Noticee had violated regulation 3, 4 (1) & 4 (2)
(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 (hereinafter referred to as „PFUTP
Regulations’) and clause A(2), (3) & (4) of the Code of Conduct under Schedule II
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{read with erstwhile regulation 7 (now regulation 9(f)} of the SEBI (Stock Brokers and
Sub Brokers) Regulations, 1992 (hereinafter referred to as „Stock Brokers
Regulations’).
APPOINTMENT OF ADJUDICATING OFFICER
3. SEBI initiated adjudication proceedings and appointed the undersigned as
Adjudicating Officer under section 15 I of the SEBI Act read with rule 3 of the SEBI
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules,
1995 (hereinafter referred to as „Adjudicating Rules’) vide order dated December 04,
2014, to inquire into and adjudge under section 15 HA and 15 HB of the SEBI Act for
the violation of aforesaid provisions of the PFUTP Regulations and the Stock Brokers
Regulations.
SHOW CAUSE NOTICE, REPLY AND HEARING
4. Show Cause Notice No. E&AO/RA/JP/2642/2015 dated January 22, 2015 (hereinafter
referred to as “SCN”) was served upon the Noticee under rule 4(1) of the
Adjudication Rules to show cause as to why an inquiry should not be held and penalty
be not imposed under sections 15HA and 15HB of the SEBI Act for the alleged
violation specified in the said SCN. The allegations levelled against the Noticee in the
SCN are briefly mentioned below;
(a) The Noticee had indulged in executing large self trades with an intention to
artificially raise the volume in USD-INR contracts and to create misleading
appearance of trading in the currency derivatives segment at USE during the
inspection period. The trading pattern of the Noticee (self trades in its proprietary
account in currency derivatives) has been confirmed by USE on the basis of details
of order/trade logs for the period April 2011 to October 2011. Copy of finding of
inspection and copy of letter of USE dated October 22, 2013 attaching data / details
of self trades by the Noticee gathered from trade logs / order logs of its Exchange's
server, were provided to the Noticee as Annexure II and III respectively.
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(b) Trading volumes of the Noticee were uniformly distributed across MCX-SX and
USE. The details were shown in table mentioned at page 2 of the finding of
inspection. The Noticee also made profits at USE during all the months during the
period under consideration except in the month of August 2011.
(c) The Noticee had four terminals / trader IDs namely- T1, T2, T3 and T4 wherein T1 is
an admin id allotted in the name of Noticee and all these terminals were located at
the same address i.e. Martin Burn House, 1, R N Mukherjee Road, Kolkata. There
were total 51 approved users at the Noticee during the inspection period. The
Noticee had also traded with Jaypee Capital Services Ltd. (JCSL) an entity who was
also observed to have executed self trades in other part of inspection by SEBI.
Turnover of Noticee's trades / self trades and its comparison with that of USE and
with JCSL was provided in the SCN.
(d) The Noticee's turnover had increased significantly from ` 27,365 crores to ` 67,854
crores between April till September 2011 and its turnover in proportion to total
turnover of all the trading members on USE ranged between 9.13% to 19.81% (with
the average being 11.98%) during the inspection period. During the month of April
2011, self-trades of the Noticee contributed 57.56% to its total turnover which has
decreased during the subsequent months. The Noticee's trades with JCSL
constitute 33.61% of its total turnover during April 2011 which has constantly
increased thereafter reaching a maximum of 67.41% during August 2011.
(e) During the initial months of inspection period, Noticee's trades were primarily self-
trades and these self-trades have accounted for nearly 15% to 58% of its turnover
during the inspection period. The orders (buy as well as sell) placed within
difference of zero second was around 16 % of all the self trades in terms of the
number of trades and the turnover contributed by such trades was about 59 % of its
total turnover generated by all the self-trades. The total turnover for the self trades
executed within a difference of 10 seconds, amounted to approximately 27% of its
total turnover during the period covered.
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(f) The Noticee had executed large sized trades on 57 trading days out of a total of 139
trading days during the period (i.e. 41% of the trading days). All these trades were
self-trades of the Noticee and on 41 days out of the above, proportion of large
trades to the total trades of the Noticee ranged from 31% to 76%. Large trades were
considered as the trades where the number of contracts per trade were more than
4000 and up to a maximum permissible level of 10,000 contracts. There were 38
instances where the maximum limit of 10,000 contract size per order were traded by
the Noticee and all these trades were self-trades.
(g) In view of aforesaid indulgence by the Noticee in self trades, it was alleged that the
Noticee had violated regulation 3, 4 (1) & 4 (2) (a) of the PFUTP Regulations and
clause A(2), (3) & (4) of the Code of Conduct under Schedule II of Stock Brokers
Regulations. The alleged provisions of laws are mentioned below;
FUTP Regulations
3. Prohibi tion of certain deali ngs in securi ties 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 arelisted 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.
4. Prohibiti on of manipulative, fr audulent and unfair trade practice
(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 itinvolves 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;
Stock Brokers Regulations
Schedule I I of erstwhil e regulation 7 (now regulation 9(f)
(2) Exercise of due skill and care : A stock-broker shall act with due skill, care and diligence
in the conduct of all his business.
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(3) Manipulation : A stock-broker shall not indulge in manipulative, fraudulent or deceptivetransactions or schemes or spread rumours 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 concertwith 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 stockbroker shall not
involve himself in excessive speculative business in the market beyond reasonable levels not
commensurate with his financial soundness.
5. In response to the SCN, the Noticee filed its reply dated February 06, 2015 and also
enclosed a reply dated January 30, 2014 which was filed by it before the General
Manager (Market Intermediaries Regulation & Supervision Department) of SEBI
consequent to inspection of books of accounts and other records etc. Considering the
cause after perusal of replies of the Noticee and for the purpose of inquiry under rule
4 (3) of the Adjudication Rules, the Noticee was granted an opportunity of hearing onMarch 20, 2015 vide notice dated February 23, 2015. Hearing on March 20, 2015,
was attended by the authorised representative of the Noticee namely- Mr. Sushil
Kumar Todi and Mr. Sunil Singhi and the submissions made by them were recorded.
Thereafter, the Noticee vide letter dated March 23, 2015 submitted copy of financial
statement of accounts for the year 2013-14.
6. The key submissions in reply of the Noticee dated February 06, 2015 read with reply
dated January 30, 2014 and in the course of hearing towards the SCN, are being
mentioned below;
(a) We had taken membership of USE during the year 2010 and we were given to
understand by the Stock Exchange officials that the volumes in the Stock
Exchange would be very high with a very high numbers of members. But we had
no idea that only handful members including us were doing the trade.
(b) We came to know about the trade volumes only after being pointed out by SEBIteam. We were not involved in any matching or artificial trading activities as we
have been doing voluminous trade in all segments of our membership including
NSEIL, BSE and MCX & SX. Our trading quantity as well as our transaction
quantity are very high in all segments and never had any problems in any other
Stock Exchange. We are surprised that no action on part of stock Exchange was
taken to inform us.
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(c) On the issue of 0 to 10 seconds time difference between orders, the logic
followed by the daily dealers is that they use to place buy or sale orders in
advance and if the market movements are not in accordance to their strategy,
then, the dealer executes sale or buy order reversing their pending orders
instead of cancelling them in order to save time and money. This was the normal
practice followed by the dealers at that time.
(d) We are engaged in proprietary trades and basically jobbing transaction in all
segments of the all stock exchange. We as a jobber always are interested in new
product since new product are always volatile and there is price movement which
provides profit / gain to the jobbers more frequently as compared to settled
products. This was one of the reasons we opted for jobbing transaction at USE
as it was a new stock exchange.
(e) In case of online trading, the front end software is provided by the stock
exchange and all other parameters are set by stock exchange. We have no
control over the system except placing orders or modifying / cancelling it. We
have been doing trades on NSE / BSE platform also and these stock exchanges
have been providing us with various kinds of alerts i.e. exceeding margin,
matching of transactions, price variation / movements beyond normal limit,
abnormal high transaction etc.
(f) We have no idea regarding our percentage of concentration in trades as we
have no mean to check the same and stock exchange has never provided or
shares data with us. We were not having knowledge of counterparty with our
trades and moreover, never received any alerts from surveillance team of StockExchange during the trading days. Our gain or loss should not be seen in
isolation of one stock exchange. We have not been penalized for our jobbing or
arbitrage transactions.
(g) We did not indulge in any kind of unfair trade practices and entire trading was
done in our proprietary account for arbitrage purpose only. Stock Exchange
never questioned our such transactions. The alleged indulgence was completely
unintentional. No unfair gain was made by us in such transactions and no harm
was caused to investors / anyone. A lenient view may please be taken. At
present we are not doing any trading in such segment. We tender our sincereapology for not been able to have our own better equipped surveillance system.
7. After taking into account the allegations, reply of the Noticee and other evidences /
material available on records, I hereby, proceed to decide the case on merit.
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CONSIDERATION OF ISSUES AND FINDINGS
8. The issues that arise for consideration in the present case are :
a) Whether the Noticee had indulged into large self trades / contracts with an
intention to artificially raise the volume in USD-INR contracts and to createmisleading appearance of trading in the currency derivatives segment at USE
during the inspection period?
b) Whether such indulgence the Noticee is in violation of regulation 3, 4 (1) & 4 (2)
(a) of the PFUTP Regulations and clause A(2), (3) & (4) of the Code of Conduct
under Schedule II {read with erstwhile regulation 7 (now regulation 9(f)} of the
Stock Brokers Regulations?
c) If yes, then, does the violation, on the part of the Noticee attract monetary penalty
under sections 15 HA and 15HB of the SEBI Act?
d) If yes, then, what would be the monetary penalty that can be imposed upon the
Noticee taking into consideration the factors mentioned in section 15J of the SEBI
Act read with rule 5 (3) of the Adjudication Rules?
9. I have carefully perused the allegations, submissions of the Noticee and the
evidences / material available on records. The facts and the details of the trading /
trading data as alleged in the SCN, are not in dispute by the Noticee. The
submissions of the Noticee towards the allegations are mentioned at para 6 above
and same are not repeated for sake of brevity.
10. The sole nature of allegation in the SCN is that the Noticee had indulged into largenumbers of self trades / contracts with an intention to artificially raise the volume in
USD-INR contracts and to create misleading appearance of trading in the currency
derivatives segment at USE. Here, it is relevant to depict as to what the "self trades"
are. Self trades are those kinds of trades where the seller and the buyer in a trade /
contract remain the same person and in such types of transactions no actual
beneficial ownership is changed.
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11. It is not out of place to mention that in respect of self trading, the Hon'ble Securities
Appellate Tribunal in the matter of Shankar Sharma Vs. SEBI (Appeal No. 14/2009
decided on October 28, 2009), observed as follows-
“ ….. …. It is thus clear that the appellant was on both sides. He was the buyer as well as the
seller. The buy and sell orders were put into the system at almost the same time. Such trades
have been executed in large quantities while dealing with the shares of different companies.
We have no hesitation to hold that these trades were fictitious as there was no change in the
beneficial ownership of the shares traded and it was the appellant on both sides of the trades.
How can a person buy from himself and sell to himself. Such trades are only meant to create
artificial volumes and they disturb the market equilibrium”. Therefore, taking in to
consideration the above position of law, I am of the firm opinion that the Noticee had
indulged in the said fictitious trades which are per se illegal and only meant to artificially
create the volumes in the scrip".
12. Needless to say that the operation of securities laws / judgments etc. relating to the
aspect of such self trades executed either in equity segment or in currency derivates
have the same bearing as the principle underlying for such trading is equally
applicable in both kind of segments. In view of the above, it is appropriate to state that
the purpose of execution of such large self trades is only to create false / misleading
appearance of trading and to artificially increase the volume or price or both.
13. Now, I am proceeding to analyse the trading pattern of the Noticee in the USD-INR
contracts in currency derivatives. It is noted from the undisputed available records
(Annexure II and III of the SCN) that the Noticee being a stock broker had executed
large contracts / trades in its proprietary account at USE. The trading volumes of the
Noticee were consistently dispersed across MCX-SX and USE and such details are
shown in a table mentioned at page 2 of the finding of inspection (Annexure II of the
SCN) and same is produced hereunder;
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14. The available records shows that the Noticee's turnover had increased significantly
from ` 27,365 crores to ` 67,854 crores between April till September 2011 and its
turnover in proportion to total turnover of all the trading members on USE ranged
between 9.13% to 19.80% (with the average being 11.98%) during the inspection
period. As per records, monthly concentration of the Noticee for the USD-INR
contracts, is as under:
15. It is noted that Noticee had four terminals / trader IDs namely- T1, T2, T3 and T4
wherein T1 is an admin id allotted in the name of Noticee and all these terminals were
located at the same address. From the trading data as provided by the USE(Annexure III of the SCN) which remained undisputed by the Noticee, it is shown that
the Noticee's trades were primarily self-trades and these self-trades have accounted
for nearly 15% to 58% of its turnover during the inspection period. The trading pattern
of Noticee (self trades in its proprietary account in currency derivatives) has been
confirmed by USE on the basis of details of order/trade logs for the period April 2011
to October 2011. Terminal wise contribution to the Noticee's turnover including self-
Month of2011
Trade concentration ofTSPL / Noticee
Number of activetrading members at USE
April 13.84% 72
May 11.53% 79June 11.19% 75
July 9.13% 80
August 9.36% 87
September 18.32% 90
October 19.80% 84
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trade turnover; and the details of time difference between the self trades / turnover of
Noticee's trades, are shown in below tables.
Terminal wise contributions to total trade volume:
TerminalTotal No.
of buytrades
Terminal'sbuy tradesas % of
total trades
Total No.of selltrades
Terminal'ssell tradesas % of
total trades
Totalturnover(in
crores)
Terminal's
turnover as% of TSPL’s
totalturnover
T2 178692 49.62% 179333 49.88% 163117.48 49.81%
T3 180590 50.15% 179440 49.91% 164091.78 50.11%
T4 804 0.22% 776 0.22% 256.37 0.08%
Total 360086 100.00% 359549 100.00% 327465.64 100.00%
Time difference analysis for self trades:
SlNo
Timedifferencebetweenorders (inseconds)
No. oftrades
As % of allself-tradesof TSPL
Turnover(incrores)
As % of totalself-tradeturnover ofTSPL
As % oftotalturnover ofTSPL
1 0 7,680 15.80% 52302.70 58.45% 15.97%
2 1 8,596 17.68% 11279.64 12.60% 3.44%
3 2 5,683 11.69% 5617.59 6.28% 1.72%
4 3 3,811 7.84% 3176.06 3.55% 0.97%
5 4 6,803 13.99% 5569.06 6.22% 1.70%
6 7 3,810 7.84% 2868.77 3.21% 0.88%
7 10 12,237 25.17% 8674.67 9.69% 2.65%Total 48,620 100.00% 89488.49 100.00% 27.33%
16. From the aforementioned table, it is apparent that self trades for which orders (both
buy as well as sell) placed by the Noticee within time difference of zero second was
58.45% of its total self trade turnover and were around 16 % of its total turnover. From
above table, it is also clear that the self trades for which respective buy and sell
orders were placed by the Noticee within a time difference of zero to 10 seconds, had
amounted to 27.33% of its total turnover. This apparently shows that the large
numbers of self trades / contracts were executed by the Noticee during inspection
period.
17. I have further observed from the available records that the Noticee had executed
large sized trades on 57 trading days out of total 139 trading days (i.e. 41% of the
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trading days) during the inspection period and all these trades were self-trades of the
Noticee. The trades were considered as the large trades where the number of
contracts per trade were more than 4000 and up to a maximum permissible level of
10,000 contracts. It is noted that on 41 days, proportion of large trades to the total
trades of the Noticee ranged from 31% to 76%. It is also observed from the records
that there were 38 instances where the maximum limit of 10,000 contract size per
order were traded by the Noticee and all these trades were self trades. The count of
such large sized trades were determined on the basis of data furnished by Noticee
during the inspection and same are shown as under:
Range ofcontract size
Number of trades withsuch large contracts
4,000-5,000 663
5,001-6,000 3 6,001-7,000 16
7,001-8,000 31
8,001-9,000 4
9,001-10,000 156
Total 873
Only 10,000 38
18. I have further observed that the Noticee had also traded with Jaypee Capital Services
Ltd. (JCSL) an entity who was also observed to have executed self trades at USE in
currency derivatives during the same period of inspection. The Noticee's trades with
JCSL constituted 33.61% of its total turnover during April 2011 which has constantly
increased thereafter reaching a maximum of 67.41% during August 2011. Turnover
of Noticee's trades / self trades and its comparison with that of USE and with the
JCSL is mentioned at below table.
Turnover f igures giv en below are for USD-INR futures contracts in rupees crores
Month(2011)
Totalturnoveron USE
Turnover of
TSPL onUSE
TSPL'sturnover as %of totalturnover onUSE
Turnover forself-
tradesof
TSPL
Self-tradesas % of
itstotal
turnover
Turnover for
TSPL’stradeswith
JCSL
Tradeswith
JCSL as% of
TSPL'stotal
turnover
Turnover for
TSPL'stradeswithother
members
Tradeswithother
members as %
ofTSPL's
totalturnov
er
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a b c d (=c/b) e f (=e/c) g h (=g/c) i j (=i/c)
Apr 1,97,690 27,365 14% 15,751 58% 9,197 34% 2,417 9%
May 3,84,456 44,350 12% 18,584 42% 21,412 48% 4,354 10%
Jun 4,49,298 50,291 11% 17,085 34% 27,347 54% 5,859 12%
Jul 5,51,613 50,380 9% 13,384 27% 31,118 62% 5,879 12%
Aug 6,44,776 60,357 9% 7,562 13% 40,686 67% 12,109 20%
Sep 3,70,571 67,854 18% 13,125 19% 33,820 50% 20,909 31%
Oct 1,35,645 26,868 20% 3,997 15% 13,554 50% 9,317 35%
Total 27,34,050 3,27,466 12% 89,488 27% 1,77,134 54% 60,843 19%
19. I have noted from the records that during the month of April 2011, self-trades of the
Noticee contributed around 58% to its total turnover. Further, Noticee's turnover under
these self trades were for ` 89,488 which is very huge and its total turnover at USE
during the inspection periods was 12%. Available records also shows that the Noticee
also made profits at USE for all the months during the inspection period except in the
month of August 2011. The details of such profits across Stock Exchanges are shown
below;
20. From the above, it is very much clear that the Noticee had executed / indulged into
huge numbers of self trades / contracts in its proprietary account whereby no
meaningful ownership was changed in such transactions.
21. In respect of allegation of self trades, the Noticee submitted that it did not indulge in
any kind of unfair trade practices and entire trading was done in its proprietary
account for arbitrage purpose only. I do not rely upon said submission of the Noticee
as it is impractical to earn arbitrage in self trading as the buyer and seller is the same
person (Noticee) and not beneficial ownership of contacts is thereby changed. If the
Month(2011)
NSE-CD USEMCX-SX Overall
PremiumMark toMarket Premium
Mark toMarket
Apr -1,45,355 9,30,112 2000 40,02,877 -22,12,840 25,76,795.00
May 1,02,910 3,79,282 49,74,162 -15,02,700 37,47,835.00
Jun 35,687 5,84,677 19,98,782 8,91,222 35,10,370.00
Jul -1,33,527 -22,686 79,30,480 -32,69,655 45,04,611.45
Aug 5,48,630 -19,20,229 -23,21,385 92,45,849 55,52,865.00
Sep -3,27,585 21,01,617 1,06,26,430 16,17,756 1,40,18,219.70
Oct 16,735 -3,84,555 91,41,321 -63,13,037 24,60,462.90
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buyer and seller in a particular transaction is the same person, then, how the concept
of arbitrage can arise.
22. Further, the Noticee submitted that as a normal practice, it used to place buy or sale
orders in advance and if the market movements are not in accordance to its strategy,
then, the dealer executes sale or buy order reversing their pending orders instead of
cancelling them in order to save time and money. Such submission is not acceptable
with simple reason that if the Noticee did not want to go ahead with respective buy or
sale orders, then, it could have easily cancelled those orders instead of reversing the
same and thereby creating an artificial impression to the market / investors that trades
are being done in the particular segment with such high volumes. I also do not
understand as to how time and money can be saved in reversing the orders (which in
turn results as not warranted under law); rather, the time and money can be saved by
cancelling of such orders so that further procedural part of trading and several other
charges thereto can be avoided. Therefore, aforesaid submissions of the Noticee are
devoid of any merit.
23. Another submission of the Noticee that it did not know the counterparty, is also not
acceptable in case of self trades. The defence of counterparty knowledge is
immaterial as upon executing buy as well as sell orders / contracts within zero time
difference, itself reveals that the intention of the person (Noticee) was to match his
respective orders with himself only. As observed above, such pattern of self trading
was continued by the Noticee for a large period (April to October 2011) which was
around 27% of its total turnover and 58% of total self trades were executed within
zero time difference only.
24. The plea of the Noticee that it had no idea regarding its percentage of concentration in
trades, front end software was provided by the stock exchange and all other
parameters are set by stock exchange, no trading is done at present in such segment
and it had never received any alerts from surveillance team of Stock Exchange during
the trading days etc., does not bears any weight in light of observation / analysis
made above. Copy of financial statement for the year 2013 -14 filed by the Noticee
cannot support the Noticee towards the nature of violation (self trading) committed by
it during the period in 2011.
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25. Besides above observation and taking into consideration the continuous trading
pattern of the Noticee, the fact cannot be ignored that if the Noticee was genuinely
intending to trade in currency segment, then, it should have adopted such mechanism
which is permissible / fair enough, but not such mechanism / practice which is ipso -
facto unwarranted under law. I cannot ignore the fact that these trades are not stray
transactions, as 48,620 numbers of self trades (having 873 trades of large size
contracts) are considerable in numbers during the inspection period. Further, such
pattern of self trades was continued by the Noticee for a large period (April to October
2011) which was around 27% of its total turnover and 58% of total self trades were
executed within zero time difference only. It is noticed from the material available from
the records that the large numbers of the self trades were executed at the USE during
the inspection period only by the JCSL and the Noticee. The manipulative intent of the
Noticee in such self trades is clear from the fact of placing such buy as well as sell
orders at same time (zero difference) or difference of 0 -10 seconds only and that too
for a long time. This clearly suggests that the orders were put in the system of stock
exchange with manipulative intent by the Noticee so as to get it matched with itself in
order to artificially raise the volume in USD-INR contracts during the inspection period
and to create misleading appearance of trading in the currency derivatives segment at
USE .
26. Here, I also refer the judgment of Hon'ble SAT in H J Securities Pvt. Ltd. v/s SEBI
(Appeal No. 76/2012) decided on may 11, 2012 which held that-
"The modus-operandi of the appellant in operating through the 19 jobbers from different
locations has resulted in fictitious trades / self trades where the buyer and the seller are the
same party. Such trades create artificial volume in the traded scrip and send wrong signal to
the lay investor with regard to trading in the scrip. ……………………........ If the appellant
was operating through jobbers from different terminals, he should have placed some
mechanism in place to ensure that his trades do not result in self trades. Simply because the
number of such self trades is not large by itself cannot justify execution of self trades. Theappellant is free to adopt any business model but he has to ensure that whatever business
model he adopts, it is in conformity with the regulatory framework".
27. Further, the similar findings were made by the Hon'ble Securities Appellate Tribunal in
the case of Krupa Soni & Ors. v/s SEBI (Appeal No. 32/2013) decided on January 09,
2014 holding that-
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"On perusal of pleadings and hearing the oral submissions, we note that the self trades are
fictitious in nature as there is no transfer of actual beneficial ownership of share and because
the buyer and seller are the same person. Such trades are injurious to a healthy market and
result in the creation of artificial volumes in the scrip. This in turn gives a totally wrong
signal to the members of the public who may invest in the hope of making some gains but
ultimately land up with losses".
28. In view of the aforesaid analysis / observations at Para No. 10 to 27, it is clear that the
Noticee had indulged in executing such large self trades with an intent to artificially
raise the volume in USD-INR contracts during the inspection period and to create
misleading appearance of trading in the currency derivatives segment at USE.
Apparently, the Noticee being a registered stock broker / registered intermediary
beside indulging into aforesaid manipulative trades, had also failed to exercise due
skill, care and diligence in the conduct of its business as a stock broker as mandated
under the code of conduct under Stock Brokers Regulations. Therefore, I am of the
view that by such manipulative act / practice / artifice / mechanism and failure, the
Noticee had violated regulation 3, 4 (1) & 4 (2) (a) of the PFUTP Regulations and
clause A(2), (3) & (4) of the Code of Conduct under Schedule II of Stock Brokers
Regulations.
29. Thus, the aforesaid violations by the Noticee makes him liable for penalty under
Section 15HA and Section 15HB of SEBI Act, 1992 which read as follows:
“ Penalty for fr audulent and unfair trade practices 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities,
he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits
made out of such practices, whichever is higher.
Penal ty for contr avention where no separate penal ty has been provided
15HB. Whoever fails to comply with any provision of this Act, the rules or the regulationsmade or directions issued by the Board thereunder for which no separate penalty has been
provided, shall be liable to a penalty which may extend to one crore rupees.”
30. While determining the quantum of penalty under sections 15HA and 15HB, it is
important to consider the factors stipulated in section 15J of SEBI Act, which reads as
under:-
“15J - Factors to be taken i nto account by the adjudicating off icer While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have
due regard to the following factors, namely:-
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(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made asa result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the default;
(c) the repetitive nature of the default.”
31. It is noted that the investigation does not specify the disproportionate gains or unfair
advantage made by the Noticee or the specific loss suffered by the investors due tosuch self trades / contacts. No repetitive nature of the default is shown on records to
have been committed by the Noticee. Investigation only revealed that as per mark to
market statement, the Noticee made profits at USE for all the months during the
inspection period except in the month of August 2011, but, it was not specified that
such profit were made exclusively from the transactions of self trades. It is relevant to
mention here that no direct and quantifiable unfair / disproportionate gain can be
acquired by the person (Noticee) in such kinds of self trading as in such self trades,
the buyer and the seller remains the same person and no ownership of contract is
changed. Practically speaking there is no other counterparty whose money is
wrongfully or manipulatively derived in such trading. However, needless to say that
such self trading are meant only to create false / misleading appearance of trading
and to artificially increase the volume / price or both and to induce the other investors
/ market player to enter into such false / artificial segment which undoubtedly affects
their (investors) interests ultimately.
32. Though, as observed above, no quantifiable unfair / disproportionate gain was shown
to have been acquired by the Noticee in such self trading, however, I cannot ignore
the gravity of violations involved in the matter viz. enormous numbers of manipulative
self trades i.e. 48,620 self trades which were 27.33% out of its total trades, continuous
indulgence in such self trading for long time of around 7 months, Noticee's huge
turnover of ` 89488.49 crores under these self trades, its total 12% turnover and
continuous higher trading volumes of the Noticee at USE during the inspection period
as compared to pre and post inspection period the details of which are shown in table
at para 13 above, possible adverse impact in disturbing the equilibrium of fair market
mechanism and shaking investor's confidence in the scrip etc.
33. Here, I am also inclined to refer to a judgment of the Hon'ble Securities Appellate
Tribunal in case of Angel Broking Pvt. Ltd. V/s SEBI (Appeal No. 46/2014) decided on
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October 01, 2014 whereby penalty of ` 10 Lakh imposed upon the appellant in
violation of PFUTP Regulation and ` 10 Lakh for violation of Code of Conduct of
Stock Brokers Regulations for same charge of self trading was upheld. The said
penalty of ` 20 lakh was upheld in a case where only 4 self trades involving 9866
shares were executed by the appellant in just 2 days, whereas, in the instant case,
the Noticee had executed 48,620 self trades for long time of around 7 months with
huge turnover of ` 89488.49 crores. Certainly, the instant case involves severe gravity
and taking into account aforesaid aspects, I am of the view that a justifiable penalty
needs to be imposed upon the Noticee to meet the ends of justice.
ORDER
34. After taking into consideration all the facts and circumstances of the case, I hereby
impose a penalty of ` 1,00,00,000/- (Rupees One Crore only) under section 15HA of
the SEBI Act and ` 10,00,000/- (Rupees Ten Lakh only) under section 15HB of the
SEBI Act. Therefore, a total penalty of ` 1,10,00,000/- (Rupees One Crore and Ten
Lakh only) is imposed upon on the Noticee / Todi Securities Pvt. Ltd. I am of the view
that the said penalty would be commensurate with the violations committed by the
Noticee.
35. The Noticee shall pay the said amount of penalty by way of Demand Draft in favour of
“SEBI - Penalties Remittable to Government of India”, payable at Mumbai, within 45
days of receipt of this order. The said demand draft should be forwarded to Chief
General Manager, Market Intermediaries Regulation and Inspection Department
(MIRSD) at the address:- Mittal Court, B & C Wing, 1st Floor, 224 Nariman Point,
Mumbai – 400 021.
36. In terms of rule 6 of the Adjudication Rules, copies of this order are sent to the
Noticee and also to the Securities and Exchange Board of India.
Date: April 29, 2015 RACHNA ANAND
Place: Mumbai ADJUDICATING OFFICER
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