JUDGMENT
R.N. Bhardwaj, Member
1. Swadha Securities Private Limited (for short “Swadha”) is a member of Calcutta Stock Exchange which has been registered with Securities and Exchange Board of India (for short “SEBI”) as a Stockbroker under SEBI (Stock Brokers and Sub-Brokers) Regulations 1992. The appellant has filed the appeal against the order dated 28/12/2005 passed by the Whole Time Member, SEBI which reads as under:
5.5 I note that such transactions, wherein the buy and sell orders were entered as cross deals and matched in terms of order quantity, price and the time of punching orders, are highly irregular and defeat the purpose of normal order matching system in the price discovery process in the exchanges, therefore, I am convinced that the same are in violation of Regulation of 4 of FUTP Regulations and Clause B4(a) of Code of Conduct of Stock Broker Regulations read with Regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
In view of my observations and above provisions of law, I am convinced that it is a fit case to impose a penalty of suspension of Certificate of Registration against Swadha.
6.ORDER
Therefore, in exercise of the powers conferred upon me in terms of Section 19 of SEBI Act, 1992 read with Regulation 13 (4) of Enquiry Regulations, I hereby suspend the certificate of registration of Swadha Securities Pvt. Ltd. as a Stock broker for a period of one month.
2. SEBI had conducted an investigation in the dealings of scrip of M.P. Investment and Financial Consultancy Services Limited (for short “MPIFCSL”) and it found that the appellant prima facie was involved in the dealings of the scrip during the period July, 2001 to October, 2001. An Enquiry Officer was appointed who submitted his report on 30/06/2004 with the finding that Swadha had entered into irregular trades which led to the order matching which affected the price discovery process in the Exchange. Its trading was in violation of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. He further mentioned in the Enquiry Report that the said broker violated Clause B4(a) of the Code of Conduct and recommended a penalty of suspension of Certificate of Registration for a period of one month.
3. A show cause notice dated 13/07/2004 was issued to the said broker i.e., Swadha, who submitted its reply on 28/07/2004. In its reply it denied all the charges and stated that it had been maintaining financial and investor discipline right from the beginning of its operations from November, 2000. It denied having violated the provision of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and also clause B4(a) of the Code of Conduct of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. It submitted that during July, 2001 to October, 2001 it did not enter into transactions of MPIFCSL scrip with the intention of artificially raising or depressing the price of the scrip. It further contended that the decline in the price of MPIFCSL from Rs. 45.25 to Rs. 14.50 during this period was as a result of normal trading and it was in no way involved in depressing the price.
4. SEBI considered the enquiry report, show cause notice issued to the appellant and its reply and arrived at the findings that during July, 2001 to October, 2001 there were three main brokers of Calcutta Stock Exchange, namely, Ballabh Das Daga, Swadha Securities Private Limited and Dinesh Kanodia who had traded heavily in this scrip and the total volume traded by these three brokers was around 94% of the total volume of the scrip at Calcutta Stock Exchange. The total volume at Calcutta Stock Exchange during Settlement No. 2002115 and 2002129 was 18,27,060/- and the total volume of these three brokers was 17,19,000. The price of the scrip also declined to 68% from Rs. 45.25 to Rs. 14.30 during the same period. “Swadha” also traded heavily in this scrip and during the same period the total trade of Swadha in the scrip was 6,80,600 shares which was about 37% of the total volume transacted at Calcutta Stock Exchange during the aforesaid period. The impugned order dated 28/12/2005 contains large number of instances giving the details of order number, order date and time, quantity, price, buy or sell, trade number, trade time and counter party name of the trade effected during this period by the appellant. It is quite obvious that out of large number of transactions there is a matching of the order of quantity, price and time. The buy and sell quantities were matched and as a result of such matching there was no obligation of delivery to the Exchange. The trades executed by Swadha were mutually agreed with the clients as a result of such matched trade there was a sharp decline in the price of the scrip from Rs. 45.25 to Rs. 14.30 during the period.
5. The contention of the broker with regard to the large transactions which took place during the period July, 2001 to October, 2001 was that transactions were undertaken with the intention of earning brokerage which was not acceptable because such transactions violated Regulation 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 and they also violated the Code of Conduct of the Stock Brokers.
6. After hearing the learned representative of the appellant and the learned counsel for the respondent we agree with the findings in the impugned order that Swadha along with other brokers of Calcutta Stock Exchange was responsible for increasing the matched artificial volume of trade of the scrip of MPIFCSL. It was involved in substantially large transactions where order, quantity, price matched completely and such matching of trades led to sharp decline in the price of the scrip during aforesaid period. We, however, feel that suspension of certificate of registration for a period of one month is rather harsh as we find that during the same period , i.e., July, 2001 to October, 2001 the appellant by SEBI order dated 27/01/2005, had been imposed a major penalty of suspension of Certificate of Registration for a period of six months for dealing in the shares of Offshore Finvest Limited. The said order was modified by SAT vide its order dated 21/03/2005 wherein while upholding the SEBI order of suspension of Certificate of Registration of the appellant the penalty was reduced to a period of 7 days. In view of above, while upholding the order, we modify the same and reduce the period of suspension of certificate of registration of the appellant from one month to one week. No order as to costs.