The Securities and Exchange Board of India (Sebi) has imposed penalties of Rs 2 lakh each on two brokerage firms for violating trading norms in 2004.
The two entities, Mansukh Securities & Finance (MSFL) and Intec Shares and Stock Brokers (ISSL), were found to have carried out synchronised or circular trading, while dealing in shares of Videocon Industries on behalf of their clients. Circular trading refers to a fraudulent practice through which the seller and the buyer may have an understanding on trading of specific shares.
In separate orders issued on July 30, Sebi said the penalties of Rs 2 lakh each were commensurate with the violations by MSFL and ISSL. It added these would also deter prospective violators in the future. The orders were passed after Sebi’s investigation into trading in Videocon shares between January 14 and February 26 in 2004. During this period, the scrip plunged about 20 per cent from Rs 36.15 to Rs 28.90.
According to findings of the probe, MSFL and ISSL accounted for 71.68 per cent of the gross traded shares of Videocon Industries during that period.
Sebi said 28 trades were carried out over nine days. During this period, the order time, price and quantity matched closely and, therefore, “these trades prima facie were structured/synchronised trades”. It was also found in all these structured trades, MSFL and ISSL were the brokers for either the seller or the buyer.
Sebi said such trading amounted to fraudulent and unfair trade practice and created false and misleading appearance of trading in the scrip of Videocon Industries. The trades were not intended to lead to transfer of beneficial ownership, but to operate only as a device to cause fluctuations in the price and create artificial volume, it said, adding the Videocon Industries scrip was illiquid at that time. The trading volume wasn’t much, except on days when the two brokers executed their trades.