adjudication order in respect of todi securities pvt. ltd

8/9/2019 Adjudication Order in respect of Todi Securities Pvt. Ltd

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. RA/JP/02/2015]

________________________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,

1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND

IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

In respect of:

Todi Securities Pvt. Ltd.

(Member of United Stock Exchange of India Ltd.)

SEBI Registration No. INE27400736

BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) upon

reference for unusual trading pattern of USD / INR in currency derivatives segment

and sharp increase in trading volume through self trades at United Stock Exchange of

India Ltd (USE), had conducted inspection of books of accounts and other records of

the Todi Securities Pvt. Ltd. - Stock Broker / Member of USE having SEBI

Registration No. INE27400736 (hereinafter referred to as 'TSPL / the Noticee)

during January 23 to 25 of 2012 at the registered office of Noticee. The period

covered under the inspection was from 01, April 2011 to 31, October 2011 (Inspection

Period).

2. It was examined under the inspection that the Noticee had indulged in executing large

self trades with an intention to artificially raise the volume in USD-INR contracts and

to create misleading appearance of trading in the currency derivatives segment at

USE during the inspection period, which were manipulative / unfair / fraudulent in

nature; and by so doing, allegedly the Noticee had violated regulation 3, 4 (1) & 4 (2)

(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations, 2003 (hereinafter referred to as „PFUTP

Regulations’) and clause A(2), (3) & (4) of the Code of Conduct under Schedule II

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{read with erstwhile regulation 7 (now regulation 9(f)} of the SEBI (Stock Brokers and

Sub Brokers) Regulations, 1992 (hereinafter referred to as „Stock Brokers

Regulations’).

APPOINTMENT OF ADJUDICATING OFFICER

3. SEBI initiated adjudication proceedings and appointed the undersigned as

Adjudicating Officer under section 15 I of the SEBI Act read with rule 3 of the SEBI

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules,

1995 (hereinafter referred to as „Adjudicating Rules’) vide order dated December 04,

2014, to inquire into and adjudge under section 15 HA and 15 HB of the SEBI Act for

the violation of aforesaid provisions of the PFUTP Regulations and the Stock Brokers

Regulations.

SHOW CAUSE NOTICE, REPLY AND HEARING

4. Show Cause Notice No. E&AO/RA/JP/2642/2015 dated January 22, 2015 (hereinafter

referred to as “SCN”) was served upon the Noticee under rule 4(1) of the

Adjudication Rules to show cause as to why an inquiry should not be held and penalty

be not imposed under sections 15HA and 15HB of the SEBI Act for the alleged

violation specified in the said SCN. The allegations levelled against the Noticee in the

SCN are briefly mentioned below;

(a) The Noticee had indulged in executing large self trades with an intention to

artificially raise the volume in USD-INR contracts and to create misleading

appearance of trading in the currency derivatives segment at USE during the

inspection period. The trading pattern of the Noticee (self trades in its proprietary

account in currency derivatives) has been confirmed by USE on the basis of details

of order/trade logs for the period April 2011 to October 2011. Copy of finding of

inspection and copy of letter of USE dated October 22, 2013 attaching data / details

of self trades by the Noticee gathered from trade logs / order logs of its Exchange's

server, were provided to the Noticee as Annexure II and III respectively.



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(b) Trading volumes of the Noticee were uniformly distributed across MCX-SX and

USE. The details were shown in table mentioned at page 2 of the finding of

inspection. The Noticee also made profits at USE during all the months during the

period under consideration except in the month of August 2011.

(c) The Noticee had four terminals / trader IDs namely- T1, T2, T3 and T4 wherein T1 is

an admin id allotted in the name of Noticee and all these terminals were located at

the same address i.e. Martin Burn House, 1, R N Mukherjee Road, Kolkata. There

were total 51 approved users at the Noticee during the inspection period. The

Noticee had also traded with Jaypee Capital Services Ltd. (JCSL) an entity who was

also observed to have executed self trades in other part of inspection by SEBI.

Turnover of Noticee's trades / self trades and its comparison with that of USE and

with JCSL was provided in the SCN.

(d) The Noticee's turnover had increased significantly from ` 27,365 crores to ` 67,854

crores between April till September 2011 and its turnover in proportion to total

turnover of all the trading members on USE ranged between 9.13% to 19.81% (with

the average being 11.98%) during the inspection period. During the month of April

2011, self-trades of the Noticee contributed 57.56% to its total turnover which has

decreased during the subsequent months. The Noticee's trades with JCSL

constitute 33.61% of its total turnover during April 2011 which has constantly

increased thereafter reaching a maximum of 67.41% during August 2011.

(e) During the initial months of inspection period, Noticee's trades were primarily self-

trades and these self-trades have accounted for nearly 15% to 58% of its turnover

during the inspection period. The orders (buy as well as sell) placed within

difference of zero second was around 16 % of all the self trades in terms of the

number of trades and the turnover contributed by such trades was about 59 % of its

total turnover generated by all the self-trades. The total turnover for the self trades

executed within a difference of 10 seconds, amounted to approximately 27% of its

total turnover during the period covered.



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(f) The Noticee had executed large sized trades on 57 trading days out of a total of 139

trading days during the period (i.e. 41% of the trading days). All these trades were

self-trades of the Noticee and on 41 days out of the above, proportion of large

trades to the total trades of the Noticee ranged from 31% to 76%. Large trades were

considered as the trades where the number of contracts per trade were more than

4000 and up to a maximum permissible level of 10,000 contracts. There were 38

instances where the maximum limit of 10,000 contract size per order were traded by

the Noticee and all these trades were self-trades.

(g) In view of aforesaid indulgence by the Noticee in self trades, it was alleged that the

Noticee had violated regulation 3, 4 (1) & 4 (2) (a) of the PFUTP Regulations and

clause A(2), (3) & (4) of the Code of Conduct under Schedule II of Stock Brokers

Regulations. The alleged provisions of laws are mentioned below;

FUTP Regulations

3. Prohibi tion of certain deali ngs in securi ties No person shall directly or indirectly —

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device

or contrivance in contravention of the provisions of the Act or the rules or the regulations

made thereunder;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud

or deceit upon any person in connection with any dealing in or issue of securities which arelisted or proposed to be listed on a recognized stock exchange in contravention of the

provisions of the Act or the rules and the regulations made thereunder.

4. Prohibiti on of manipulative, fr audulent and unfair trade practice

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a

fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if itinvolves fraud and may include all or any of the following, namely:-

(a) indulging in an act which creates false or misleading appearance of trading in the

securities market;

Stock Brokers Regulations

Schedule I I of erstwhil e regulation 7 (now regulation 9(f)

(2) Exercise of due skill and care : A stock-broker shall act with due skill, care and diligence

in the conduct of all his business.



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(3) Manipulation : A stock-broker shall not indulge in manipulative, fraudulent or deceptivetransactions or schemes or spread rumours with a view to distorting market equilibrium or

making personal gains.

(4) Malpractices: A stock-broker shall not create false market either singly or in concertwith others or indulge in any act detrimental to the investors interest or which leads to

interference with the fair and smooth functioning of the market. A stockbroker shall not

involve himself in excessive speculative business in the market beyond reasonable levels not

commensurate with his financial soundness.

5. In response to the SCN, the Noticee filed its reply dated February 06, 2015 and also

enclosed a reply dated January 30, 2014 which was filed by it before the General

Manager (Market Intermediaries Regulation & Supervision Department) of SEBI

consequent to inspection of books of accounts and other records etc. Considering the

cause after perusal of replies of the Noticee and for the purpose of inquiry under rule

4 (3) of the Adjudication Rules, the Noticee was granted an opportunity of hearing onMarch 20, 2015 vide notice dated February 23, 2015. Hearing on March 20, 2015,

was attended by the authorised representative of the Noticee namely- Mr. Sushil

Kumar Todi and Mr. Sunil Singhi and the submissions made by them were recorded.

Thereafter, the Noticee vide letter dated March 23, 2015 submitted copy of financial

statement of accounts for the year 2013-14.

6. The key submissions in reply of the Noticee dated February 06, 2015 read with reply

dated January 30, 2014 and in the course of hearing towards the SCN, are being

mentioned below;

(a) We had taken membership of USE during the year 2010 and we were given to

understand by the Stock Exchange officials that the volumes in the Stock

Exchange would be very high with a very high numbers of members. But we had

no idea that only handful members including us were doing the trade.

(b) We came to know about the trade volumes only after being pointed out by SEBIteam. We were not involved in any matching or artificial trading activities as we

have been doing voluminous trade in all segments of our membership including

NSEIL, BSE and MCX & SX. Our trading quantity as well as our transaction

quantity are very high in all segments and never had any problems in any other

Stock Exchange. We are surprised that no action on part of stock Exchange was

taken to inform us.



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(c) On the issue of 0 to 10 seconds time difference between orders, the logic

followed by the daily dealers is that they use to place buy or sale orders in

advance and if the market movements are not in accordance to their strategy,

then, the dealer executes sale or buy order reversing their pending orders

instead of cancelling them in order to save time and money. This was the normal

practice followed by the dealers at that time.

(d) We are engaged in proprietary trades and basically jobbing transaction in all

segments of the all stock exchange. We as a jobber always are interested in new

product since new product are always volatile and there is price movement which

provides profit / gain to the jobbers more frequently as compared to settled

products. This was one of the reasons we opted for jobbing transaction at USE

as it was a new stock exchange.

(e) In case of online trading, the front end software is provided by the stock

exchange and all other parameters are set by stock exchange. We have no

control over the system except placing orders or modifying / cancelling it. We

have been doing trades on NSE / BSE platform also and these stock exchanges

have been providing us with various kinds of alerts i.e. exceeding margin,

matching of transactions, price variation / movements beyond normal limit,

abnormal high transaction etc.

(f) We have no idea regarding our percentage of concentration in trades as we

have no mean to check the same and stock exchange has never provided or

shares data with us. We were not having knowledge of counterparty with our

trades and moreover, never received any alerts from surveillance team of StockExchange during the trading days. Our gain or loss should not be seen in

isolation of one stock exchange. We have not been penalized for our jobbing or

arbitrage transactions.

(g) We did not indulge in any kind of unfair trade practices and entire trading was

done in our proprietary account for arbitrage purpose only. Stock Exchange

never questioned our such transactions. The alleged indulgence was completely

unintentional. No unfair gain was made by us in such transactions and no harm

was caused to investors / anyone. A lenient view may please be taken. At

present we are not doing any trading in such segment. We tender our sincereapology for not been able to have our own better equipped surveillance system.

7. After taking into account the allegations, reply of the Noticee and other evidences /

material available on records, I hereby, proceed to decide the case on merit.



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CONSIDERATION OF ISSUES AND FINDINGS

8. The issues that arise for consideration in the present case are :

a) Whether the Noticee had indulged into large self trades / contracts with an

intention to artificially raise the volume in USD-INR contracts and to createmisleading appearance of trading in the currency derivatives segment at USE

during the inspection period?

b) Whether such indulgence the Noticee is in violation of regulation 3, 4 (1) & 4 (2)

(a) of the PFUTP Regulations and clause A(2), (3) & (4) of the Code of Conduct

under Schedule II {read with erstwhile regulation 7 (now regulation 9(f)} of the

Stock Brokers Regulations?

c) If yes, then, does the violation, on the part of the Noticee attract monetary penalty

under sections 15 HA and 15HB of the SEBI Act?

d) If yes, then, what would be the monetary penalty that can be imposed upon the

Noticee taking into consideration the factors mentioned in section 15J of the SEBI

Act read with rule 5 (3) of the Adjudication Rules?

9. I have carefully perused the allegations, submissions of the Noticee and the

evidences / material available on records. The facts and the details of the trading /

trading data as alleged in the SCN, are not in dispute by the Noticee. The

submissions of the Noticee towards the allegations are mentioned at para 6 above

and same are not repeated for sake of brevity.

10. The sole nature of allegation in the SCN is that the Noticee had indulged into largenumbers of self trades / contracts with an intention to artificially raise the volume in

USD-INR contracts and to create misleading appearance of trading in the currency

derivatives segment at USE. Here, it is relevant to depict as to what the "self trades"

are. Self trades are those kinds of trades where the seller and the buyer in a trade /

contract remain the same person and in such types of transactions no actual

beneficial ownership is changed.



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11. It is not out of place to mention that in respect of self trading, the Hon'ble Securities

Appellate Tribunal in the matter of Shankar Sharma Vs. SEBI (Appeal No. 14/2009

decided on October 28, 2009), observed as follows-

“ ….. …. It is thus clear that the appellant was on both sides. He was the buyer as well as the

seller. The buy and sell orders were put into the system at almost the same time. Such trades

have been executed in large quantities while dealing with the shares of different companies.

We have no hesitation to hold that these trades were fictitious as there was no change in the

beneficial ownership of the shares traded and it was the appellant on both sides of the trades.

How can a person buy from himself and sell to himself. Such trades are only meant to create

artificial volumes and they disturb the market equilibrium”. Therefore, taking in to

consideration the above position of law, I am of the firm opinion that the Noticee had

indulged in the said fictitious trades which are per se illegal and only meant to artificially

create the volumes in the scrip".

12. Needless to say that the operation of securities laws / judgments etc. relating to the

aspect of such self trades executed either in equity segment or in currency derivates

have the same bearing as the principle underlying for such trading is equally

applicable in both kind of segments. In view of the above, it is appropriate to state that

the purpose of execution of such large self trades is only to create false / misleading

appearance of trading and to artificially increase the volume or price or both.

13. Now, I am proceeding to analyse the trading pattern of the Noticee in the USD-INR

contracts in currency derivatives. It is noted from the undisputed available records

(Annexure II and III of the SCN) that the Noticee being a stock broker had executed

large contracts / trades in its proprietary account at USE. The trading volumes of the

Noticee were consistently dispersed across MCX-SX and USE and such details are

shown in a table mentioned at page 2 of the finding of inspection (Annexure II of the

SCN) and same is produced hereunder;



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14. The available records shows that the Noticee's turnover had increased significantly

from ` 27,365 crores to ` 67,854 crores between April till September 2011 and its

turnover in proportion to total turnover of all the trading members on USE ranged

between 9.13% to 19.80% (with the average being 11.98%) during the inspection

period. As per records, monthly concentration of the Noticee for the USD-INR

contracts, is as under:

15. It is noted that Noticee had four terminals / trader IDs namely- T1, T2, T3 and T4

wherein T1 is an admin id allotted in the name of Noticee and all these terminals were

located at the same address. From the trading data as provided by the USE(Annexure III of the SCN) which remained undisputed by the Noticee, it is shown that

the Noticee's trades were primarily self-trades and these self-trades have accounted

for nearly 15% to 58% of its turnover during the inspection period. The trading pattern

of Noticee (self trades in its proprietary account in currency derivatives) has been

confirmed by USE on the basis of details of order/trade logs for the period April 2011

to October 2011. Terminal wise contribution to the Noticee's turnover including self-

Month of2011

Trade concentration ofTSPL / Noticee

Number of activetrading members at USE

April 13.84% 72

May 11.53% 79June 11.19% 75

July 9.13% 80

August 9.36% 87

September 18.32% 90

October 19.80% 84



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trade turnover; and the details of time difference between the self trades / turnover of

Noticee's trades, are shown in below tables.

Terminal wise contributions to total trade volume:

TerminalTotal No.

of buytrades

Terminal'sbuy tradesas % of

total trades

Total No.of selltrades

Terminal'ssell tradesas % of

total trades

Totalturnover(in

crores)

Terminal's

turnover as% of TSPL’s

totalturnover

T2 178692 49.62% 179333 49.88% 163117.48 49.81%

T3 180590 50.15% 179440 49.91% 164091.78 50.11%

T4 804 0.22% 776 0.22% 256.37 0.08%

Total 360086 100.00% 359549 100.00% 327465.64 100.00%

Time difference analysis for self trades:

SlNo

Timedifferencebetweenorders (inseconds)

No. oftrades

As % of allself-tradesof TSPL

Turnover(incrores)

As % of totalself-tradeturnover ofTSPL

As % oftotalturnover ofTSPL

1 0 7,680 15.80% 52302.70 58.45% 15.97%

2 1 8,596 17.68% 11279.64 12.60% 3.44%

3 2 5,683 11.69% 5617.59 6.28% 1.72%

4 3 3,811 7.84% 3176.06 3.55% 0.97%

5 4 6,803 13.99% 5569.06 6.22% 1.70%

6 7 3,810 7.84% 2868.77 3.21% 0.88%

7 10 12,237 25.17% 8674.67 9.69% 2.65%Total 48,620 100.00% 89488.49 100.00% 27.33%

16. From the aforementioned table, it is apparent that self trades for which orders (both

buy as well as sell) placed by the Noticee within time difference of zero second was

58.45% of its total self trade turnover and were around 16 % of its total turnover. From

above table, it is also clear that the self trades for which respective buy and sell

orders were placed by the Noticee within a time difference of zero to 10 seconds, had

amounted to 27.33% of its total turnover. This apparently shows that the large

numbers of self trades / contracts were executed by the Noticee during inspection

period.

17. I have further observed from the available records that the Noticee had executed

large sized trades on 57 trading days out of total 139 trading days (i.e. 41% of the



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trading days) during the inspection period and all these trades were self-trades of the

Noticee. The trades were considered as the large trades where the number of

contracts per trade were more than 4000 and up to a maximum permissible level of

10,000 contracts. It is noted that on 41 days, proportion of large trades to the total

trades of the Noticee ranged from 31% to 76%. It is also observed from the records

that there were 38 instances where the maximum limit of 10,000 contract size per

order were traded by the Noticee and all these trades were self trades. The count of

such large sized trades were determined on the basis of data furnished by Noticee

during the inspection and same are shown as under:

Range ofcontract size

Number of trades withsuch large contracts

4,000-5,000 663

5,001-6,000 3 6,001-7,000 16

7,001-8,000 31

8,001-9,000 4

9,001-10,000 156

Total 873

Only 10,000 38

18. I have further observed that the Noticee had also traded with Jaypee Capital Services

Ltd. (JCSL) an entity who was also observed to have executed self trades at USE in

currency derivatives during the same period of inspection. The Noticee's trades with

JCSL constituted 33.61% of its total turnover during April 2011 which has constantly

increased thereafter reaching a maximum of 67.41% during August 2011. Turnover

of Noticee's trades / self trades and its comparison with that of USE and with the

JCSL is mentioned at below table.

Turnover f igures giv en below are for USD-INR futures contracts in rupees crores

Month(2011)

Totalturnoveron USE

Turnover of

TSPL onUSE

TSPL'sturnover as %of totalturnover onUSE

Turnover forself-

tradesof

TSPL

Self-tradesas % of

itstotal

turnover

Turnover for

TSPL’stradeswith

JCSL

Tradeswith

JCSL as% of

TSPL'stotal

turnover

Turnover for

TSPL'stradeswithother

members

Tradeswithother

members as %

ofTSPL's

totalturnov

er



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a b c d (=c/b) e f (=e/c) g h (=g/c) i j (=i/c)

Apr 1,97,690 27,365 14% 15,751 58% 9,197 34% 2,417 9%

May 3,84,456 44,350 12% 18,584 42% 21,412 48% 4,354 10%

Jun 4,49,298 50,291 11% 17,085 34% 27,347 54% 5,859 12%

Jul 5,51,613 50,380 9% 13,384 27% 31,118 62% 5,879 12%

Aug 6,44,776 60,357 9% 7,562 13% 40,686 67% 12,109 20%

Sep 3,70,571 67,854 18% 13,125 19% 33,820 50% 20,909 31%

Oct 1,35,645 26,868 20% 3,997 15% 13,554 50% 9,317 35%

Total 27,34,050 3,27,466 12% 89,488 27% 1,77,134 54% 60,843 19%

19. I have noted from the records that during the month of April 2011, self-trades of the

Noticee contributed around 58% to its total turnover. Further, Noticee's turnover under

these self trades were for ` 89,488 which is very huge and its total turnover at USE

during the inspection periods was 12%. Available records also shows that the Noticee

also made profits at USE for all the months during the inspection period except in the

month of August 2011. The details of such profits across Stock Exchanges are shown

below;

20. From the above, it is very much clear that the Noticee had executed / indulged into

huge numbers of self trades / contracts in its proprietary account whereby no

meaningful ownership was changed in such transactions.

21. In respect of allegation of self trades, the Noticee submitted that it did not indulge in

any kind of unfair trade practices and entire trading was done in its proprietary

account for arbitrage purpose only. I do not rely upon said submission of the Noticee

as it is impractical to earn arbitrage in self trading as the buyer and seller is the same

person (Noticee) and not beneficial ownership of contacts is thereby changed. If the

Month(2011)

NSE-CD USEMCX-SX Overall

PremiumMark toMarket Premium

Mark toMarket

Apr -1,45,355 9,30,112 2000 40,02,877 -22,12,840 25,76,795.00

May 1,02,910 3,79,282 49,74,162 -15,02,700 37,47,835.00

Jun 35,687 5,84,677 19,98,782 8,91,222 35,10,370.00

Jul -1,33,527 -22,686 79,30,480 -32,69,655 45,04,611.45

Aug 5,48,630 -19,20,229 -23,21,385 92,45,849 55,52,865.00

Sep -3,27,585 21,01,617 1,06,26,430 16,17,756 1,40,18,219.70

Oct 16,735 -3,84,555 91,41,321 -63,13,037 24,60,462.90



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buyer and seller in a particular transaction is the same person, then, how the concept

of arbitrage can arise.

22. Further, the Noticee submitted that as a normal practice, it used to place buy or sale

orders in advance and if the market movements are not in accordance to its strategy,

then, the dealer executes sale or buy order reversing their pending orders instead of

cancelling them in order to save time and money. Such submission is not acceptable

with simple reason that if the Noticee did not want to go ahead with respective buy or

sale orders, then, it could have easily cancelled those orders instead of reversing the

same and thereby creating an artificial impression to the market / investors that trades

are being done in the particular segment with such high volumes. I also do not

understand as to how time and money can be saved in reversing the orders (which in

turn results as not warranted under law); rather, the time and money can be saved by

cancelling of such orders so that further procedural part of trading and several other

charges thereto can be avoided. Therefore, aforesaid submissions of the Noticee are

devoid of any merit.

23. Another submission of the Noticee that it did not know the counterparty, is also not

acceptable in case of self trades. The defence of counterparty knowledge is

immaterial as upon executing buy as well as sell orders / contracts within zero time

difference, itself reveals that the intention of the person (Noticee) was to match his

respective orders with himself only. As observed above, such pattern of self trading

was continued by the Noticee for a large period (April to October 2011) which was

around 27% of its total turnover and 58% of total self trades were executed within

zero time difference only.

24. The plea of the Noticee that it had no idea regarding its percentage of concentration in

trades, front end software was provided by the stock exchange and all other

parameters are set by stock exchange, no trading is done at present in such segment

and it had never received any alerts from surveillance team of Stock Exchange during

the trading days etc., does not bears any weight in light of observation / analysis

made above. Copy of financial statement for the year 2013 -14 filed by the Noticee

cannot support the Noticee towards the nature of violation (self trading) committed by

it during the period in 2011.



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25. Besides above observation and taking into consideration the continuous trading

pattern of the Noticee, the fact cannot be ignored that if the Noticee was genuinely

intending to trade in currency segment, then, it should have adopted such mechanism

which is permissible / fair enough, but not such mechanism / practice which is ipso -

facto unwarranted under law. I cannot ignore the fact that these trades are not stray

transactions, as 48,620 numbers of self trades (having 873 trades of large size

contracts) are considerable in numbers during the inspection period. Further, such

pattern of self trades was continued by the Noticee for a large period (April to October

2011) which was around 27% of its total turnover and 58% of total self trades were

executed within zero time difference only. It is noticed from the material available from

the records that the large numbers of the self trades were executed at the USE during

the inspection period only by the JCSL and the Noticee. The manipulative intent of the

Noticee in such self trades is clear from the fact of placing such buy as well as sell

orders at same time (zero difference) or difference of 0 -10 seconds only and that too

for a long time. This clearly suggests that the orders were put in the system of stock

exchange with manipulative intent by the Noticee so as to get it matched with itself in

order to artificially raise the volume in USD-INR contracts during the inspection period

and to create misleading appearance of trading in the currency derivatives segment at

USE .

26. Here, I also refer the judgment of Hon'ble SAT in H J Securities Pvt. Ltd. v/s SEBI

(Appeal No. 76/2012) decided on may 11, 2012 which held that-

"The modus-operandi of the appellant in operating through the 19 jobbers from different

locations has resulted in fictitious trades / self trades where the buyer and the seller are the

same party. Such trades create artificial volume in the traded scrip and send wrong signal to

the lay investor with regard to trading in the scrip. ……………………........ If the appellant

was operating through jobbers from different terminals, he should have placed some

mechanism in place to ensure that his trades do not result in self trades. Simply because the

number of such self trades is not large by itself cannot justify execution of self trades. Theappellant is free to adopt any business model but he has to ensure that whatever business

model he adopts, it is in conformity with the regulatory framework".

27. Further, the similar findings were made by the Hon'ble Securities Appellate Tribunal in

the case of Krupa Soni & Ors. v/s SEBI (Appeal No. 32/2013) decided on January 09,

2014 holding that-



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"On perusal of pleadings and hearing the oral submissions, we note that the self trades are

fictitious in nature as there is no transfer of actual beneficial ownership of share and because

the buyer and seller are the same person. Such trades are injurious to a healthy market and

result in the creation of artificial volumes in the scrip. This in turn gives a totally wrong

signal to the members of the public who may invest in the hope of making some gains but

ultimately land up with losses".

28. In view of the aforesaid analysis / observations at Para No. 10 to 27, it is clear that the

Noticee had indulged in executing such large self trades with an intent to artificially

raise the volume in USD-INR contracts during the inspection period and to create

misleading appearance of trading in the currency derivatives segment at USE.

Apparently, the Noticee being a registered stock broker / registered intermediary

beside indulging into aforesaid manipulative trades, had also failed to exercise due

skill, care and diligence in the conduct of its business as a stock broker as mandated

under the code of conduct under Stock Brokers Regulations. Therefore, I am of the

view that by such manipulative act / practice / artifice / mechanism and failure, the

Noticee had violated regulation 3, 4 (1) & 4 (2) (a) of the PFUTP Regulations and

clause A(2), (3) & (4) of the Code of Conduct under Schedule II of Stock Brokers

Regulations.

29. Thus, the aforesaid violations by the Noticee makes him liable for penalty under

Section 15HA and Section 15HB of SEBI Act, 1992 which read as follows:

“ Penalty for fr audulent and unfair trade practices 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities,

he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits

made out of such practices, whichever is higher.

Penal ty for contr avention where no separate penal ty has been provided

15HB. Whoever fails to comply with any provision of this Act, the rules or the regulationsmade or directions issued by the Board thereunder for which no separate penalty has been

provided, shall be liable to a penalty which may extend to one crore rupees.”

30. While determining the quantum of penalty under sections 15HA and 15HB, it is

important to consider the factors stipulated in section 15J of SEBI Act, which reads as

under:-

“15J - Factors to be taken i nto account by the adjudicating off icer While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have

due regard to the following factors, namely:-



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(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made asa result of the default;

(b) the amount of loss caused to an investor or group of investors as a result of the default;

(c) the repetitive nature of the default.”

31. It is noted that the investigation does not specify the disproportionate gains or unfair

advantage made by the Noticee or the specific loss suffered by the investors due tosuch self trades / contacts. No repetitive nature of the default is shown on records to

have been committed by the Noticee. Investigation only revealed that as per mark to

market statement, the Noticee made profits at USE for all the months during the

inspection period except in the month of August 2011, but, it was not specified that

such profit were made exclusively from the transactions of self trades. It is relevant to

mention here that no direct and quantifiable unfair / disproportionate gain can be

acquired by the person (Noticee) in such kinds of self trading as in such self trades,

the buyer and the seller remains the same person and no ownership of contract is

changed. Practically speaking there is no other counterparty whose money is

wrongfully or manipulatively derived in such trading. However, needless to say that

such self trading are meant only to create false / misleading appearance of trading

and to artificially increase the volume / price or both and to induce the other investors

/ market player to enter into such false / artificial segment which undoubtedly affects

their (investors) interests ultimately.

32. Though, as observed above, no quantifiable unfair / disproportionate gain was shown

to have been acquired by the Noticee in such self trading, however, I cannot ignore

the gravity of violations involved in the matter viz. enormous numbers of manipulative

self trades i.e. 48,620 self trades which were 27.33% out of its total trades, continuous

indulgence in such self trading for long time of around 7 months, Noticee's huge

turnover of ` 89488.49 crores under these self trades, its total 12% turnover and

continuous higher trading volumes of the Noticee at USE during the inspection period

as compared to pre and post inspection period the details of which are shown in table

at para 13 above, possible adverse impact in disturbing the equilibrium of fair market

mechanism and shaking investor's confidence in the scrip etc.

33. Here, I am also inclined to refer to a judgment of the Hon'ble Securities Appellate

Tribunal in case of Angel Broking Pvt. Ltd. V/s SEBI (Appeal No. 46/2014) decided on



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October 01, 2014 whereby penalty of ` 10 Lakh imposed upon the appellant in

violation of PFUTP Regulation and ` 10 Lakh for violation of Code of Conduct of

Stock Brokers Regulations for same charge of self trading was upheld. The said

penalty of ` 20 lakh was upheld in a case where only 4 self trades involving 9866

shares were executed by the appellant in just 2 days, whereas, in the instant case,

the Noticee had executed 48,620 self trades for long time of around 7 months with

huge turnover of ` 89488.49 crores. Certainly, the instant case involves severe gravity

and taking into account aforesaid aspects, I am of the view that a justifiable penalty

needs to be imposed upon the Noticee to meet the ends of justice.

ORDER

34. After taking into consideration all the facts and circumstances of the case, I hereby

impose a penalty of ` 1,00,00,000/- (Rupees One Crore only) under section 15HA of

the SEBI Act and ` 10,00,000/- (Rupees Ten Lakh only) under section 15HB of the

SEBI Act. Therefore, a total penalty of ` 1,10,00,000/- (Rupees One Crore and Ten

Lakh only) is imposed upon on the Noticee / Todi Securities Pvt. Ltd. I am of the view

that the said penalty would be commensurate with the violations committed by the

Noticee.

35. The Noticee shall pay the said amount of penalty by way of Demand Draft in favour of

“SEBI - Penalties Remittable to Government of India”, payable at Mumbai, within 45

days of receipt of this order. The said demand draft should be forwarded to Chief

General Manager, Market Intermediaries Regulation and Inspection Department

(MIRSD) at the address:- Mittal Court, B & C Wing, 1st Floor, 224 Nariman Point,

Mumbai – 400 021.

36. In terms of rule 6 of the Adjudication Rules, copies of this order are sent to the

Noticee and also to the Securities and Exchange Board of India.

Date: April 29, 2015 RACHNA ANAND

Place: Mumbai ADJUDICATING OFFICER

adjudication order in respect of todi securities pvt. ltd

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