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Tuesday, Dec 16, 2003

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SEBI suspends CSE member

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Kolkata , Dec. 15

SEBI has suspended the registration of Mr Shyam Sunder Dalmia, a member of the Calcutta Stock Exchange, who has allegedly dealt with unregistered sub-brokers and entered into transactions with other members of the bourse and settled trades outside the exchange mechanism.

The SEBI order passed by Mr A.K. Batra, Whole-time Member, is a result of an inspection related to the fiscal years 2000-01 and 2001-02. It is based on certain "irregularities/deficiencies" that were noticed by the regulator. These included non-maintenance of order and margin deposit books. Also, the broker had entered into transactions with two others - Dalmia Securities and Nangalia Stock Broking - which were not registered with SEBI as sub-brokers. Further, it was alleged that there was a failure to collect upfront margins from clients. The regulator, after considering replies and other submissions, felt that there has been violation of a circular that requires a stockbroker to maintain a record of the time of placement of an order. This is important as it points out whether the order has been executed at the best price and whether the broker has acted diligently.

The broker concerned had indicated that there is no substance in the allegation that the two entities (referred to as unregistered sub-brokers) had dealt with him as sub-brokers. It was confirmed that his transactions with these entities were in the nature of two firms acting on proprietary basis. SEBI has accepted the explanation; it has also found that the charge that the broker had entered into deals with unregistered elements is not sustainable.

The SEBI inspection report, it may be mentioned, referred to certain negotiated deals involving three parties: H C Biyani, D K Singhania and Pradeep Kayan & Co. The regulator has incidentally banned negotiated and cross-deals done with the objective of ensuring that all orders are to be executed through the stock exchange mechanism. Trades outside this mechanism tend to interfere with price discovery. The regulator, however, has observed that it "has not been conclusively established that the transactions were not spot transactions." Additionally, it has given the benefit of doubt to the broker.

The regulator has noted that a few deals have the same order number, the same quantity and same price matched with Mehta & Ajmera. It was pointed out that the deals put through C-Star system of CSE were not possible unless the price, quantity and time were pre-determined. The SEBI enquiry officer had recommended that Mr S.S. Dalmia be suspended for one year . However, a penalty of suspension of registration for three months was considered appropriate.

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