If the response of the show-cause notice is not filed then it can be presumed that the alleged charges were admitted – THE SECURITIES AND EXCHANGE BOARD OF INDIA
The SEBI observed a large-scale reversal of trades in the stock options segment and these trades led to the creation of artificial volume. During further investigation it was found that Arun Kapoor HUF(NOTICEE) was found alleged for the said creation of reversal trades and a show-cause notice was sent to noticee as per the principle of natural justice to hear the response for the alleged violations of the provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of SEBI Regulations, 2003. After no response was filed by the noticee the adjudication proceedings were initiated against the noticee by the appointed adjudication officer AMIT KAPOOR [ADJUDICATION ORDER NO. Order/AK/AN/2021-22/14934]
The proceedings were initiated against the Noticee for the said violations and it was found that t total of 2,91,643 trades comprising 81.38% of all trades executed in the stock options segment of BSE during the Investigation Period were non-genuine trades. These non-genuine trades resulted in the creation of artificial volume to the tune of 826.21 crore units or 54.68% of the total market volume in the stock options segment of BSE during the Investigation Period. The trades executed by the noticee show that the Noticee had executed the said trades in one contract, wherein the percentage of trades of the Noticee in stock options contracts to total trades in the said contracts is 50%. The non- genuineness of trades can be understood as the trades were conducted and reversed within a short period and the Noticee reversed the position with his counterparty with a significant price difference. Such a short period taken for reversing the trades in an illiquid stock option contract suggests the non-genuineness of these trades executed by the Noticee.
The officer notes that it cannot be a mere coincidence that the matching of trades with the same counterplay can be a coincidence but it is beforehand connection of minds and the officer relies on the judgment of SEBI v Kishore R Ajmera (AIR 2016 SC 1079). the fraudulent intent cannot be understood from the direct evidence but can be related to the trading pattern of the noticee and the office relies on Ketan Parekh vs. SEBI.
Further, the trading behavior of the Noticee confirms that such trades were not normal and the wide variation in prices of the trades in the same contract in almost no time without any basis for such wide variation, all indicate that the trades executed by the Noticee were not genuine and being non-genuine, created an appearance of artificial trading volumes in the said contract and the authority finds the violation of regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations by the Noticee stands established. The officer relies on the judgment of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216(SC).
From the investigation, the officer finds the noticee liable for the alleged violations and imposes a monetary penalty of Rs. 5,00,000 under the provisions of Section 15HA of the SEBI Act.
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Order reviewed by Naveen Sharma
