While barring Angel Broking, one of the biggest brokerages in the country, SEBI said the occurrence of synchronized deals in a circular manner persistently cannot be said to be a co-incidence as the shares were being rotated intra-day within a closed group and there was no change in the beneficial ownership in the shares of Sun Infoway

Market regulator Securities and Exchange Board of India (SEBI) has barred Angel Broking from accepting new assignments or any new clients for two weeks for violating code of conduct for stock brokers.

“The noticee (Angel Broking), by indulging in the trading pattern discussed above has failed to perform its duties as specified in the code of conduct for stock brokers in the Broker Regulations. In view of the above, I find that the noticee has violated Clauses A(2) and A(3) of the Code of Conduct prescribed for Stock Brokers in Schedule II under Regulation 7 of Broker Regulations,” said Prashant Saran, whole-time member of SEBI in an order.

The market regulator has also prohibited Allwin Securities and Bharti Thakkar India Securities from taking up any new assignment for two weeks. It also suspended erstwhile N C Jain (presently known as NCJ Shares and Stockbrokers Ltd) for a period of one week.

The order would come into force after 21 days.
 

The matter relates with trading of Sun Infoway (SIL) between 5 February and 2 May 2001. SEBI’s investigations prima facie revealed that circular/reversal traders were executed by certain brokers forming part of few groups in the scrip of SIL. Such circular/reversal trades created artificial volume to the tune of 5.43 lakh shares (gross) in 37 days out of 50 trading days. It was found that the circular trading in the scrip had generated 26% to 97% of the daily volumes on the days when such trading was observed. The circular/reversal trades had resulted into an increase in the price of the scrip in the beginning of the investigation period till 2 March 2001 and the price of the scrip had stayed in the range of Rs342 to Rs296 (opening price). Thereafter, the trading of these entities in the scrip reduced drastically, the volume of trades in the scrip became negligible and the price of the scrip also started declining. The “last traded price” (LTP) analysis for the entire period shows that the price of the scrip varied in the range from -14% to 11.54%, SEBI said.

SEBI said, during the investigation period, three different groups were found trading in the scrip of SIL in a circular manner. Out of these, the group consisting of eight brokers/sub-brokers, NC Jain, Opulant Stock Broking, Bharti Thakkar India Securities Pvt Ltd, ISJ Securities/Vintel Securities, Sripal Jain, Joindre Capital Service/Alwin Securities and Reneissance Securities/Mellennium Securities and their clients including Angel Broking were found trading amongst themselves in circular manner, which led to the creation of artificial volumes in the market. The total volume generated by this group by way of circular trades was 3.42 lakh shares (gross) or about 37.52% of the total quantity traded during the period of investigation.

In his order, Mr Saran said, “Considering the number of shares involved in the present proceedings executed by the noticee for its client and also the pattern of trading, I am of the view that these numbers were good enough for the noticee to raise some suspicion on the trading pattern of its clients. Therefore, it can be concluded that the noticee had aided and abetted its client in the creation of artificial volume in the scrip of SIL in violation of the provisions of Regulation 4(b) and (d) of the PFUTP Regulations.”

“I further note that if stock brokers are not careful and allow their systems to be misused, manipulations cannot be eliminated from the market. The circular/reversal trades are contrary to normal trading practices and create false market. The noticee (Angel Broking) has dealt in the scrip of SIL in a manner detrimental to the interest of investors. Such acts threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors as the same pose serious threat to the price discovery mechanism of the stock exchange and the safety of the securities market mechanism,” Mr Saran said.