INDIA BUSINESS WORLD - APRIL - MAY 2007
The Month that was ...

SC ADMITS APPEAL IN SEBI POWERS CASE

THE Supreme Court (SC) has admitted Sebi's appeal that the market regulator is empowered to take disciplinary action against stock brokers on the basis of the pattern and nature of trades which is sufficient enough to show price manipulation of shares. Sebi has challenged a ruling by the Securities Appellate Tribunal (SAT), which had said that a broker is devoid of any malafide when he executes synchronised and fictitious trades on the screen of the exchange.

The market regulator, however, said that it is empowered to take action against stock brokers carrying out synchronised and fictitious trades on the basis of their trading pattern.

"In FUTP (fraudulent and unfair trade practices) violations, there may not be any direct evidence revealing the mafafide of the broker rather than surrounding circumstantial evidence, and conduct of the broker is taken into account while determining the complicity of the broker," said Sebi in its appeal.

Sebi has said that the knowledge of the broker is apparent from the trading data and proof of manipulation always depends on inferences drawn from factual detail. "If the principle stated by the tribunal is upheld, the regulator will be put to a very serious handicap where a clear factual inference will have to be ignored as a matter of law and a very high degree of proof will be required to draw an inference of malafide on part of stock broker," said Sebi.

The market regulator has maintained that in highly-liquid trading where the participants are numerous, it is almost improbable to get a broker's trade executed always with the same counter party, unless the broker is in collusion with the counter party and client.

Hence, the tribunal ruling is based on incomplete understanding of execution of synchronised trades, said Sebi.

Sebi has said that the question that arises for consideration is that whether SAT is empowered to set aside its order on the ground that the data collected in investigation is not sufficient to prove that a stock broker had indulged in manipulating the market. SAT had set aside market regulator order of suspension of registration of Millennium Equity for manipulating the price of shares of Shonk Technologies, GTB and DSQ Software.