Sunday, July 29, 2012

Synchronised Trades Per Se Not Illegal

There is no prohibition on synchronised trading in securities, so long as the securities are delivered and that the transaction has not been effected with manipulative intent to artificially move the price of the stock. This position has been reiterated in a recent order of the Securities Appellate Tribunal (SAT) involving Subhkam Securities Private Limited. The relevant portions of the order are extracted below:
The transactions were executed at the prevailing market price and there is no allegation of price manipulation.  The trades were carried out on the floor of the exchange and there was transfer of beneficial ownership in all the transactions. Assuming that the trades were synchronized, the fact remains that the trades were executed over a period of three months and there is no allegation that it affected the price of the scrip.  It is an admitted position that synchronized trades per se are not illegal.  It is only when synchronized trades are executed with a view to manipulate the price of the scrip that the provisions of the FUTP Regulations will get attracted.  All these trades were executed on behalf of the clients and no action is said to have been taken by the Board against these clients. In view of the foregoing discussions, we are of the view that in the facts and circumstances of this case, the charge of violating the provisions of regulations 4(b) and (d) of the FUTP Regulations is not made out.  [emphasis added]
Although not germane to the substantive issue at hand, the SAT also made observations regarding the inordinate delays in SEBI’s investigation in the matter. SEBI’s order, which was passed in March 2012, related to trades that occurred way back in 2000. Relevant extracts follow:
Inordinate delay in conducting inquiries and in punishing the delinquent not only permits market manipulator to operate in the market, it also has demoralizing effect on the market players who are ultimately ‘not found guilty’ but damocles’ sword of inquiry keeps hanging on them for years together from the date of starting investigation by the Board to the date of completion of inquiry proceedings.  ...  A market player has a right that if proceedings are initiated against him by the Board for violation of any rules  and regulations, the proceedings against him, are also concluded expeditiously and he is not made to undergo mental agony when these are unnecessarily prolonged without any fault on his part in delaying  the proceedings. We hope that the Board will take necessary steps to ensure that inquiry proceedings against market manipulators are completed expeditiously and guilty persons are punished in a time bound manner so that the objective of having a clean and investor friendly market can be achieved. 


Anonymous said...

Nothing new about the order. It reiterates the position which has been there all along.

Jay Parikh said...

Yes. Reiterates SAT order in Ketan Parekh v. SEBI