The Securities and Exchange Board of India has imposed a penalty of Rs 2 lakh each on two brokerage firms for circular trading between them while dealing in the shares of Videocon Industries Ltd way back in 2004.

The two entities, Mansukh Securities & Finance Ltd and Intec Shares and Stock Brokers Ltd, have been found to have violated norms related to synchronised or circular trading, while dealing in the shares of Videocon Industries on behalf of their clients.

Circular trading

Circular trading refers to a fraudulent practice where the seller and buyer may have an understanding between them on trading of specific shares.

In separate orders, issued on July 30, SEBI said the penalty of Rs 2 lakh each is commensurate with the violations committed by Mansukh Securities and Intec Shares and would also deter prospective violators in the future.

SEBI probe

The orders have been passed after SEBI’s investigation into trading in Videocon shares in 2004 from January 14 to February 26. During this period, the scrip plunged by over 20 per cent to Rs 28.90 from Rs 36.15 per piece.

As per the SEBI probe, the two firms accounted for 71.68 per cent of the gross traded shares of Videocon during that period.

Synchronised trades

The market regulator said there were 28 trades, over a period of nine days, wherein there was very close matching of order time, price, quantity and “hence these trades prima facie were structured/ synchronised trades’’.

Further, it was found that in all these structured trades, Mansukh Securities and Intec Shares were their brokers on the seller or buyer sides.

Unfair trade practice

SEBI noted that execution of such trades amounts to fraudulent and unfair trade practice.

These trades created false and misleading appearance of trading in the scrip of Videocon Industries. They were not intended to effect the transfer of beneficial ownership but were intended to operate only as a device to cause fluctuations in price and create artificial volume, it added.

It also pointed out that the scrip of Videocon Industries was illiquid at that time and there was not much trading volume except on days when the two brokers executed their trades.

(This article was published on August 2, 2012)
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