Case Overview
This adjudication order pertains to proceedings initiated by SEBI against Ram Asava HUF (PAN: AARHR3709J) for alleged manipulative trading activities in the illiquid stock options segment of the Bombay Stock Exchange (BSE). The investigation period covered April 1, 2014, to September 30, 2015 (IP).
SEBI's investigation revealed that a significant portion of trades (81.40% or 291,744 trades) in BSE's stock options segment during the IP were non-genuine reversal trades that created artificial volumes. The noticee, Ram Asava HUF, was identified as one of 14,720 entities involved in such practices.
The specific allegation against the noticee was the execution of 4 non-genuine reversal trades in 2 stock options contracts, generating artificial volume of 150,000 units. These trades were alleged to violate Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
The trades in question were executed in contracts BPCL15MAR800.00CE and HDBK15APR1020.00CE. In the BPCL contract, the noticee bought 50,000 units from Kaustav Construction Private Limited at ₹0.35 per unit at 11:55:26 hours on March 19, 2015, and sold the same quantity back to the same counterparty at ₹5.35 per unit just 7 seconds later at 11:55:33 hours. This represented 100% of the total trades and 41.24% of the total volume in that contract.
SEBI found that these reversal trades with the same counterparty, within seconds, and at significantly different prices indicated a prior meeting of minds and pre-determination of prices. The adjudicating officer relied on Supreme Court judgments in SEBI Vs Bhavesh Pabari, SEBI v Kishore R Ajmera, and SEBI v Rakhi Trading Private Limited, which established that such synchronized trading constitutes a manipulative and deceptive device that creates a false appearance of trading.
Final Outcome
The adjudicating officer found the noticee guilty of violating PFUTP Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a). A monetary penalty of ₹5,00,000 (Five Lakh Rupees) was imposed under Section 15HA of the SEBI Act, 1992. The noticee was ordered to pay the penalty within 45 days of receipt of the order, failing which SEBI may initiate recovery proceedings under Section 28A of the SEBI Act.
The order was passed ex-parte as the noticee failed to respond to the show-cause notice (dated August 8, 2022) or avail multiple opportunities for hearing and settlement (including SEBI ISO Settlement Schemes of 2022 and 2024).
Topics: Market Manipulation, SEBI Enforcement, Derivatives Trading