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Stock market regulator SEBI on Friday approached the Supreme Court against the order of appellate body SAT, which set aside its decision to impose penalty on Rakhi Trading for alleged rigging in derivatives trade.
SEBI had imposed a penalty of Rs 1.08 crore on Rakhi Trading in March, 2009 for allegedly creating artificial volumes of Futures & Options (F&O) on the National Stock Exchange through ‘reversal of trade' route.
Admitting the plea of the Securities and Exchange Board of India (SEBI), a bench headed by Chief Justice S. H. Kapadia issued notices to the trading firm.
Attorney General Goolam E. Vahanvati, appearing for SEBI, submitted before the apex court that the matter requires urgent consideration as it involves fictitious trading on the stock exchange.
Reversal of trade
‘Reversal of trade' implies that for a buy transaction initially entered into by a broker for a particular client for a specific quantity, there is a corresponding sale transaction which takes place during the day for the same quantity between the same set of broker/clients and vice-versa.
In 2007, suspecting manipulation in the trading of F&O, SEBI probe found that Rakhi Trading and some other firms were buying and selling derivatives in equal number within a day, violating its guidelines.
It further found that the firms had created artificial volumes in the F&O segment from January to March 2007 and mislead the market and issued notice.
On March 26, 2009, SEBI imposed penalty on the firm for violating various sections of Prohibition of Fraudulent and Unfair Trade Practises Relating to Securities Market Act, 2003.
Rakhi Trading moved SAT and contended that trading in the derivatives can not affect the Nifty Index as it not traded in cash segment, hence there was no price manipulation.
It further submitted that SAT, in an earlier order in the Ketan Parekh case, had held that such synchronised trades are not illegal and in F&O trade there is no concept of change of beneficial ownership.
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