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The Supreme Court on Friday issued notice to Indiabulls Securities Ltd and asked the brokerage firm to reply to a petition by the capital market regulator SEBI challenging a Securities Appellate Tribunal (SAT) order.
The SAT had on October 26, 2010 set aside the monetary penalty of Rs 15 lakh imposed by SEBI on Indiabulls for allegedly aiding and abetting its clients in manipulating trade in the Futures and Options (F&O) segment of the National Stock Exchange of India (NSE) in violation of SEBI rules.
In its order on February 25, 2009, the SEBI had held the firm guilty of aiding and abetting its clients in executing synchronised/ matched/ reverse trades in the F&O segment, thereby violating the provisions of SEBI's FUTP (Prohibition of Fraudulent and Unfair Trade Practices) Regulations and Stock-brokers Regulations.
Appeal and denial
Indiabulls had appealed against the SEBI's order before SAT. The firm had denied the allegations and said that as a broker it had exercised due care and diligence in its transactions carried out on behalf of its clients.
It also denied its involvement in any manipulative trade in the F&O segment and detailed the steps it had taken to check suspicious trades in that segment including issuing necessary instructions to its employees to detect certain specified red alerts and sanitise the system against them and also to the clients cautioning them to desist from raising such alerts.
In its order, the SAT said it was unable to discern any whisper of evidence that Indiabulls had “aided and abetted” its clients in executing any manipulative trade or adopting any devious device to manipulate the market either in the derivative segment or in the cash segment.
The SAT also said it found no evidence of lack of due diligence on the part of Indiabulls while executing the transactions which could make it guilty of violating the code of conduct prescribed for the stock brokers. The SAT held that the firm committed no market irregularity and the charges levelled against it as a broker for executing the trades in the F&O segment cannot be sustained.
Regulator's counter
SEBI said the trading data of the F&O segment in NSE during January to March, 2007, revealed that the brokers were buying and selling almost equal quantities of contracts within the day and such buy/sell was synchronised in nature.
Claiming that it got alarmed, the SEBI said, preliminary examination revealed that certain entities including Indiabulls operating in the derivative segment had executed irregular and non-genuine trades. It also found that the same stockbroker was appearing on the buy and sell sides in many cases.
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