BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. IVD-ID1/EAL/AO/DRK-VB/EAD3- 719/44-2015]

______________________________________________________________________
UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,
1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE BOARD OF INDIA
(PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY
ADJUDICATING OFFICER) RULES, 1995
in respect of
Shailesh Shah Securities Pvt. Ltd.
Stock Broker: BSE
SEBI Registration No. INB011064558
301-308, Plot A/19, Bhagwati House,
Veera Desai Road, Andheri (W)
Mumbai 400 058
______________________________________________________________________
FACTS OF THE CASE IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
conducted an investigation into the trading in the scrip of Ess Dee Aluminium Ltd.
(hereinafter referred to as EAL) on BSE Limited (hereinafter referred to as
'BSE') and National Stock Exchange of India Ltd (hereinafter referred to as
'NSE') during the period September 01, 2012 to June 30, 2013 (hereinafter
referred to as Investigation Period). It is noted from the findings of the
investigation report (hereinafter referred to as IR) that the scrip of EAL rose
from ` 116.85 to a high of ` 617 and closed at ` 507.75 during the Investigation
period.
APPOINTMENT OF ADJUDICATING OFFICER
2. I was appointed as Adjudicating Officer and the same was communicated vide
proceedings of the Whole Time Member appointing Adjudicating Officer dated
February 05, 2014 under section 15 I of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Rule 3 of the
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to
as Rules), to inquire into and adjudge under Section 15HB of the SEBI Act for
failure to exercise due skill and care in terms of Clause A(2) of the Code of
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Conduct for Stock Brokers as specified under Schedule II read with Regulation 7
of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred
to as Stock Brokers Regulations) alleged to have been committed by Shailesh
Shah Securities Pvt. Ltd. (hereinafter referred to as the noticee).
SHOW CAUSE NOTICE, REPLY AND HEARING
3. A Show Cause Notice no. A&E/EAD-3/DRK-DS/8357/2014

dated March 19,

2014 (hereinafter referred to as 'SCN') was served on the noticee by Hand

Delivery Acknowledgement Due(hereinafter referred to as 'HDAD') in terms of
the provisions of Rule 4 of the Rules, requiring the noticee to show cause as to
why an inquiry should not be held against the noticee and why penalty, if any,
should not be imposed on it under Section 15HB of the SEBI Act for failure to
exercise due skill and care in terms of Clause A(2) of the Code of Conduct for
Stock Brokers as specified under Schedule II read with Regulation 7 of Stock
Brokers Regulations.
4. It was alleged in the SCN that the noticee had acted as stock broker and
counterparty stock broker for its client Nirshilp Securities Pvt. Ltd (hereinafter
referred to as 'Nirshilp') who executed self trades during the investigation period
leading to false and misleading appearance of trading of the scrip.The details of
said self trades are given as below:
Entity
Name

Stock
Exchange

Nirshilp
Securitie
s Pvt.
Ltd.

BSE

Stock
Broker
on Both
Buy and
Sell Side

Shailesh
Shah
Securitie
s Pvt. ltd.

Total
Self
Trade
Volume

No. of
Self
Trades

No. of
Self
Trades
from
the
same
terminal

No. of
days
on
which
self
trades
done

% of Self
Traded
Quantity
to
market
Volume

Net LTP
contribution
by self
trades (in `)

12,449

1651

551

174

0.08

3.55

5. The noticee Vide letter dated April 01, 2014, sought time to file reply to the SCN.
Vide letter dated April 04, 2014, the noticee was granted 15 days time to file
reply.
6. Subsequently, the noticee vide its reply dated April 21, 2014 made the following
submissions:
a. It is submitted that we are basically jobbers / arbitrageurs and we had a total
turnover of Rs. 3,900.33 Crores at BSE while trading in more than 1350 scrips
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during the investigation period of 01.09.2012 to 30.06.2013. As regards the table

in the SCN it is submitted that as jobbers / arbitrageurs we deal through a
network of around 12 dealers.
b. With respect to the alleged self trades by the client it may please be noted that
during the investigation period the client had engaged in voluminous trading in
more than 1350 scrips, with miniscule profit / loss margin, Ess Dee being one of
them.
c. It is submitted that the alleged self-trades are purely coincidental and not an
outcome of any design as per the modus operandi followed by the client. It may
be appreciated that when observed on a consolidated basis at the Exchange
level, it may appear as self-trades but at the individual level when the trades are
scrutinized it is clear that these were individual trades done by the client and
were independent of each other. We believe that this could be a universally
observed practical issue across the industry, whenever arbitrage/jobbing
activities is undertaken.
d. We state that the Nirshilp has been our client since 8 years and has been regular
in pay in obligations. The trades executed by us were solely on behalf of client
and it is also pertinent to note that Nirshilp had traded in more than 1350 scrips
during the period under investigation. There was no malafide intent and the
orders were placed according to the instructions of the client. Moreover, it is not
feasible to ascertain any foul play by mere placing of orders by the client. The
Order of Honble Securities Appellate Tribunal dated 25.11.2011 in SMC vs SEBI
also set aside the Order of SEBI and held the broker not guilty of violation of
Clause A(2) of the Code of Conduct specified in Schedule II of the Regulations.
The SCN also fails to allege any price manipulations and thereby it is established
that there was no undue advantage to us. We may add here that we have not
traded in the shares of EssDee on our proprietary account during the period of
investigation.
e. It may also be noted that all these trades were carried out within a very narrow
price range and this is the actual essence of jobbing. The client has executed
trades with miniscule margins and therefore, such trades cannot be said to be
have lead to false and misleading appearance of trading in the scrip.
f.

It is hereby evident that we had carried out jobbing transactions as in our normal
course of business for our client as a stock broker and had facilitated in
executing the trades on the Exchange platform. The alleged trades were
executing at the prevailing market price and do not create misleading
appearance of trading which tampers/manipulates the price discovery
mechanism of Exchange. Neither there has been any undue gain nor unfair
advantage to us nor any resultant artificial volume created as a result of the
alleged trades covered by the notice under reply. There was also no element of
any deceit, trickery or sharp practice, or breach of confidence while carrying out
the alleged trades.

g. The para under reference inter alia alleges that we have executed self trades in
Ess Dee on behalf of our client Nirshilp. It has also been alleged that in the
alleged self trades we have acted as stock broker, both on the buy side as well
as the sell side ie., we have acted as broker as well as a counter party broker to
our client. We note that the SCN has proceeded to define self trades as trades
where there is no change in beneficial ownership. It is also alleged that such self
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trades lead to a false and misleading appearance of trading in the shares of Ess
Dee. It is also observed that such self trades create artificial volumes which give
a false and misleading appearance of trading in the scrip. It is therefore inferred
that the allegation against us is that such self trades did lead to a false and
misleading appearance of trading in the shares of EssDee whereas there is just
an observation, albeit, no allegation against us that such self trades did create
volumes which gave a false and misleading appearance of trading in the scrip.
We deny that such self trades lead to a false and misleading appearance of
trading in the shares and created artificial volumes which gave a false and
misleading appearance of trading.
h. It is even more pertinent to note that even presently, a client is allowed to place
simultaneous buy and sell orders on the Exchange platform. Since the
anonymous trading platform of the Exchange allows placing simultaneous buy
and sell order in particular scrip any restriction imposed by the trading member
by whatever means would tantamount to depriving of trading opportunity to client.
Nevertheless none of the software systems available in capital market as on date
have a capability to restrict a particular trade which may result in self trade.

7. As requested, vide hearing notice dated July 25, 2014, the noticee was granted
an opportunity of personal hearing on August 05, 2014 at 12:00 noon at SEBI
Bhavan, Mumbai. The said hearing notice was sent through HDAD and was
served on the noticee.
8. Noticee vide letter dated July 31, 2014 sought adjournment of the hearing on
account of the non-availability of its Advocate. Subsequently, vide hearing notice
dated July 31, 2014, the noticee was granted a final opportunity of personal
hearing on August 08, 2014 at 12:00 noon at SEBI Bhavan.
9. In response to the hearing notice, the noticee vide letter dated July 31, 2014
authorised

Shri

Anil

Shah,

Advocate,

Juris

Matrix

as

its

Authorised

Representative (hereinafter referred to as 'AR') to attend the said hearing. AR of

the noticee appeared for the hearing and made following submissions:
a) AR reiterated the submissions made vide reply dated April 21, 2014.
b) AR further submitted that total self traded quantity to market volume traded by the
noticee is meager i.e. 0.08%.
c) The noticee is basically jobber and arbitrageur. The AR has further submitted that
the noticee do not execute delivery based trades.
d) AR has submitted the details of trades executed in the scrip of EAL during the
investigation period and the profits earned.
e) AR has submitted the copies of the Adjudication orders in the matter of Arcadia
Share and Stock Brokers Pvt. Ltd. and JMP Securities Pvt. Ltd. in support of its
submissions. The AR has also submitted the copy of the SAT order in the matter
of SMC Global Securities Ltd. in support of its submissions.
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CONSIDERATION OF EVIDENCE AND FINDINGS

10. I have taken into consideration the facts and circumstances of the case and the
material made available on record.
11. Before moving forward with allegations and reply of the noticee, I would like to
quote the Orders of the Hon'ble Securities Appellate Tribunal (SAT) with respect
to 'self trades' wherein it was held as follows
i.

Order dated June 16, 2011 in the matter of Chirag Tanna Vs The
Adjudicating Officer
Self trades have been defined by the Honble SAT as
"... trades in which both the buyer and the seller are the same entity..."
Further in the same order, Honble SAT also held that:
..we have on record the trade and order logs from which it has been pointed
out by the learned counsel for the respondent Board that the appellant had
executed self trades i.e. trades in which he was both the buyer and the seller.
Such trades are, admittedly, fictitious and create artificial volumes in the
traded scrip..

ii.

Order dated May 04, 2007 in the matter of Triumph International Finance
Ltd Vs. SEBI
..The buyer and the seller were also the same. It is obvious that these trades
were fictitious to which the appellant was a party. They were fictitious because
the buyer and the seller were the same..

iii.

Order dated 23.4.2012 in Appeal no. 21 of 2012 - Systematix Shares &

Stocks (India) Limited vs. SEBI :
". It has been held in several cases by this Tribunal that self trades are
fictitious and reprehensible. Trades, where beneficial ownership is not
transferred, are admittedly manipulative in nature. .."

iv.

Order dated 03.12.2012 in Appeal No. 211 of 2012 - Anita Dalal vs. SEBI :
"..... The appellant has been found guilty of self trade as well. Self trades
admittedly are illegal. This Tribunal has held in several cases that self trades
call for punitive action since they are illegal in nature. In M/s. Jayantilal
Khandwala & Sons Pvt. Ltd. vs. Securities and Exchange Board of India
(Appeal no. 24 of 2011 decided on June 8, 2011) this Tribunal has held that
one cannot buy and sell shares from himself. Such transactions are
obviously fictitious and meant only to create false volumes on the trading
screen of the exchange."

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v.

Order dated May 11,2012 in the matter of H.J. Securities Pvt. Ltd v. SEBI
....Appellants are free to adopt any business model, but has to ensure that
whatever model is adopted, is in conformity with regulatory framework.

12. From the above cited orders of the Hon'ble SAT, I also note that a) Self Trades are trades where beneficial ownership is not transferred;
b) Self trades are fictitious and reprehensible;
c) Trades where beneficial ownership is not transferred are manipulative in
nature;
d) Self trades create artificial volume in the market;
e) Whatever be the business model, it should ensure that such model complies
with the regulatory framework.
13. The Investigation report observed that the noticee had acted as stock broker and
counterparty stock broker for its client Nirshilp who executed self trades during
the investigation period leading to false and misleading appearance of trading in
the scrip of EAL.
14. It is noted from the investigation report that the noticee had executed self trades
for 12,449 shares which is very high. The number of instances of self trades by
the noticee at BSE is 1651 and the number of self trades emanating from the
same terminal is 551 which accounted for approximately 33% of the total
instances of Self Trades. This shows that approximately one in every three self
trades executed were from the same terminal. Further, out of around 206 trading
days during the entire investigation period, the number of days on which the
noticee executed self trades at BSE was 174 days which accounted for
approximately 84% of the total trading days during the investigation period. The
number of instances of self trades, number of instances of self trades from the
same terminal and number of days on which self trades were executed are not
miniscule by any stretch of imagination and cannot be coincidental as claimed by
the noticee.
15. The noticee quoted the Order of

Hon'ble SAT in the matter of SMC Global

Securities Limited vs SEBI wherein it was held that " the adjudicating officer erred
in holding the appellant guilty of violating clause A(2) of the Code of Conduct
specified in Schedule II of the Regulations ". In the instant case, considering the
number of instances of self trades, number of instances of self trades from the
same terminal and the number of days on which the noticee had executed self
trades appropriate checks and balances has to be put in place to ensure that it

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complies with the full regulatory framework, including not resulting into /
avoidance of self trades.
16. With respect to the submission of the noticee quoting the Orders of Adjudicating
Officer in the matter of Arcadia Share and Stock Brokers Pvt. Ltd. and JMP
Securities Pvt. Ltd. it may be noted that facts in the instant case are different
from the aforesaid cases. In the said cases, number of instances of self trades
and number of days on which self trades executed were minimal in comparision
with the instant case. Further in the instant case, number of instances of self
trades from the same terminal is also quite high.
17. In my opinion, a registered intermediary such as the noticee should have
appropriate systems to ensure that unfair market practices like self trades /
fictitious trades in such high volumes should not take place from its own
terminals. It may also be added that the activities that are prohibited should be
avoided. The same has also been emphasised by the Hon'ble SAT in the case of
H.J. Securities Pvt. Ltd. As a stock broker, the noticee has a duty to preserve the
integrity and equilibrium of the securities market.
18. In view of the aforesaid discussion / observations / Hon'ble SAT Orders, it can be
concluded that the noticee has executed Self Trades on behalf of its client in
such high volumes and the number of self trades from the same terminal is also
very high which resulted in false and misleading appearance of trading, thereby
failed to adhere to the Code of Conduct prescribed for Stock Brokers and has
violated Clause A(2) of the Code of Conduct for Stock Brokers as specified under
Schedule II read with Regulation 7 of Stock Broker Regulations. The text of the
said provisions is as follows:
Stock Broker Regulations
7. The stock broker holding a certificate shall at all times abide by the Code of
Conduct as specified in Schedule II.
A. General.
(2) Exercise of due skill and care : A stock-broker shall act with due skill, care
and diligence in the conduct of all his business.
19. The said violations attract penalty under Section 15HB of the SEBI Act which
provides that:

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15HB. Penalty for contravention where no separate penalty has been provided.Whoever fails to comply with any provision of this Act, the rules or the regulations
made or directions issued by the Board thereunder for which no separate penalty
has been provided, shall be liable to a penalty which may extend to one crore
rupees.
20. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the
Rules require that while adjudging the quantum of penalty, the adjudicating
officer shall have due regard to the following factors namely;
a. the amount of disproportionate gain or unfair advantage wherever
quantifiable, made as a result of the default;
b. the amount of loss caused to an investor or group of investors as a
result of the default;
c. the repetitive nature of the default.

21. With regard to the above factors to be considered while determining the quantum
of penalty, it is noted that the disproportionate gain or unfair advantage made by
the noticee or loss caused to the investors as a result of default of this nature is
not available on record. Further, it may also be added that it is difficult to quantify
the unfair advantage made by the noticee or the loss caused to the investors in a
default of this nature.
22. In view of the abovementioned conclusion, I hereby impose a penalty of
` 11,00,000 (Rupees Eleven Lakhs Only) on the noticee under Section 15 HB of

the Securities and Exchange Board of India Act, 1992, for failure to exercise due
skill and care in terms of Clause A(2) of the Code of Conduct for Stock Brokers
as specified under Schedule II read with Regulation 7 of SEBI (Stock Brokers
and Sub Brokers) Regulations, 1992 which is appropriate in the facts and
circumstances of the case.
ORDER
23. In exercise of the powers conferred under Section 15 I of the Securities and
Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange
Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, I hereby impose a penalty of ` 11,00,000/(Rupees Eleven Lakhs only) on the stock broker Shailesh Shah Securities Pvt
Ltd having SEBI Registration No.INB011064558 in terms of the provisions of
Section 15HB of the Securities and Exchange Board of India Act,1992 for failure
to exercise due skill and care in terms of Clause A(2) of the Code of Conduct for
Stock Brokers as specified under Schedule II read with Regulation 7 of SEBI
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(Stock Brokers and Sub-Brokers) Regulations, 1992. In the facts and

circumstances of the case, I am of the view that the said penalty is
commensurate with the failure committed by the noticee.
24. The penalty shall be paid by way of Demand Draft drawn in favour of SEBI
Penalties Remittable to Government of India payable at Mumbai within 45 days
of receipt of this order. The said demand draft shall be forwarded to Chief
General Manager, Enforcement Department, Securities and Exchange Board of
India, Plot No. C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai
400 051.
25. In terms of the provisions of Rule 6 of the Securities and Exchange Board of
India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules 1995, copies of this order are being sent to Shailesh Shah
Securities Pvt. Ltd. Stock Broker BSE having office at 301-308, Plot A/19,
Bhagwati House,Veera Desai Road, Andheri (W) Mumbai 400 058 and also to
the Securities and Exchange Board of India, Mumbai.

Place: Mumbai

D. RAVI KUMAR

Date: March 27, 2015

CHIEF GENERAL MANAGER &

ADJUDICATING OFFICER

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