Sebi moves SC against SAT order on Indiabulls Securities

The Securities and Exchange Board of India (Sebi) has moved Supreme Court challenging the sectoral tribunal SAT's order that set aside a penalty slapped by the capital market regulator on Indiabulls Securities for rigging in the derivatives trade.

Sebi's petition would come up for hearing tomorrow before a three-judge Bench headed by the Chief Justice SH Kapadia.

Passing an order on February 25, 2009, the Sebi had fined Indiabulls Securities of Rs 15 lakh after finding manipulative and fraudulent practices in the Futures and Options (F&O) by the firm during January-March 2007.

However, this was challenged by Indiabulls Securities before the appellate tribunal SAT, which on October 26, 2010 set aside Sebi's order after observing that there was no fraudulent practice.

In its order, the capital market regulator had said that Indiabulls was engaged in reversal trade in 23 F&O contracts and violated various provision of Sebi Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market (FUTP) and code of conduct prescribed under the Stock brokers Regulations.

According to the regulator, its probe in transactions in the derivative segment of the NSE between January-March 2007 revealed that some brokers were buying and selling almost equal quantities of contracts within the day.

After the preliminary examination, the market regulator found that certain entities, including Indiabulls, had executed irregular and non-genuine trades.

The Sebi found Indiabulls had executed 23 non-genuine and reverse trades on behalf of 15 clients in 21 futures and two options contracts on 22 different underlying scrips and one bank Nifty futures.

It also found that in several cases same stock-broker was appearing on the buy side as well as the sell side. Some of these transactions, which included stocks like Bajaj Auto, PNB and GE Shipping, constituted over 50 per cent of the market volume.

The regulator held Indiabulls guilty of violating Regulations 3 and 4 of the FUTP Regulations.

This was challenged by Indiabulls before SAT, which held "the trades in this case were only for tax planning and do not manipulate the market and nor are they fictitious or non-genuine. All the appeals are allowed and the impugned orders set aside with no order as to costs".