The Hindu Business Line : SEBI suspends Cholamandalam Sec for 2 months

THE Securities and Exchange Board of India has suspended for two months the certification of registration of Cholamandalam Securities Ltd, belonging to the Chennai-based Murugappa group, for its role in the trading of the scrip — MosChip Semiconductors Ltd — which witnessed unusual price rise during May 7, 2001 to May 31, 2001.

The SEBI Chairman, Mr G.N. Bajpai, in his order dated January 27, said he had considered the findings of the investigation report, show cause notice, findings of enquiry officer and reply and submissions of Cholamandalam. He said the price of MosChip scrip moved from Rs 25.80 on May 7, 2001 to Rs 50.85 on May 31, 2001 and added the increase in the price and volume of the scrip was sudden.

The SEBI Chairman said that two entities - Vijay Growth Financial Services (VGFL) and Mr B. Jayaprakash, employed in VGFL - were found to have traded substantially in MosChip and the transactions by them resulted in the establishment of higher price level. While proceedings under Sec 11E of SEBI Act, 1992 were pending against Mr Jayaprakash, the certificate of registration of VGFL has been cancelled and he learnt that the company had been wound up.

He said the registration granted by SEBI to an intermediary attached responsibility on the intermediary to act diligently and in accordance with rules, regulations and sound market practices. "A broker who is an important intermediary in the capital market has an obligation to carry out its business in a manner so that safety and integrity of the market may be maintained," he added.

Mr Bajpai pointed out that the charge against Cholamandalam had never been that it violated any SEBI circular, as argued by it. The issue was that the `conduct expected from it as a registered intermediary is not being delivered' and he found that the conduct of Cholamandalam had resulted in violation of SEBI rule that stated that a stockbroker `shall act with due skill, care and diligence of all his business'.

He directed that the certification of registration of Cholamandalam Securities be suspended for a period of two months and said the order would come into effect after three weeks from the date of the order (January 27).

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