Sebi imposes Rs 4 lakh fine on two brokerage firms

The two entities, Mansukh Securities & Finance (MSFL) and Intec Shares and Stock Brokers (ISSL) have been found to have violated norms related to synchronised or circular trading, while dealing in shares of Videocon Industries on behalf of their clients.

Circular trading refers to a fraudulent practice where the seller and buyer may have an understanding between them on trading of specific shares.

In separate orders, issued on 30 July, Sebi said the penalties of Rs. 2 lakh each is commensurate with violations committed by MSFL and ISSL and would also deter prospective violators in the future.

The orders have been passed after Sebi’s investigation into trading in Videocon shares in 2004 from 14 January to 26 February. During this period, the scrip plunged by over 20% to Rs. 28.90 from Rs. 36.15 per piece.

As per the Sebi probe, MSFL and ISSL accounted for 71.68% of the gross traded shares of Videocon Industries during that period.

The market regulator said there were 28 trades, over a period of nine days, wherein there was very close matching of order time, price, quantity and “hence these trades prima facie were structured/ synchronised trades”.

Further, it was found that in all these structured trades, MSFL and ISSL were their brokers on the seller or buyer sides.

Sebi noted that execution of such trades amounts to fraudulent and unfair trade practice.

These trades created false and misleading appearance of trading in the scrip of Videocon Industries. They were not intended to effect transfer of beneficial ownership but were intended to operate only as a device to cause fluctuations in the price and create artificial volume, it added.

Sebi also pointed out that the scrip of Videocon Industries was illiquid at that time and there was not much trading volume except on days when the two brokers executed their trades.