Case Overview

This adjudication order stems from SEBI's investigation into large-scale reversal trades in the illiquid stock options segment of Bombay Stock Exchange (BSE) during the period April 1, 2014 to September 30, 2015. The investigation revealed that 291,744 trades (81.40% of all trades in BSE's stock options segment during this period) were non-genuine, creating artificial volume.

Cube Trafin Private Limited (PAN: AABCC0768M) was identified as one of 14,720 entities involved in executing such non-genuine reversal trades. Specifically, the Noticee executed 5 non-genuine trades across 2 stock options contracts, generating artificial volume of 1,016,500 units.

The principal allegations against Cube Trafin were violations of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). These regulations prohibit fraudulent dealings in securities, manipulative devices, schemes to defraud, and practices that create false or misleading appearance of trading.

Key trade details showed:

  • In contract INFY15FEB2160.00CE: 2 trades (1 buy, 1 sell) of 8,250 units each with counterparty J B OVERSEAS within 5 seconds at significantly different prices (₹99 buy, ₹165 sell)
  • In contract INCM15FEB100.00CE: The Noticee's non-genuine trades constituted 100% of its volume and 43.4% of total market volume in the contract
  • Percentage of non-genuine trades ranged from 20% to 33.33% of total trades in the contracts

The Noticee defended itself by arguing: (1) trades were executed through anonymous exchange mechanisms without knowledge of counterparties, (2) no direct evidence of prior arrangement or collusion existed, (3) no prohibition on trading illiquid contracts at the time, (4) no investor complaints or wrongful gains occurred, and (5) the allegations were based on inferences rather than direct evidence.

The Adjudicating Officer rejected these arguments, relying on Supreme Court precedents (SEBI Vs Bhavesh Pabari, SEBI v Kishore R Ajmera, SEBI v Rakhi Trading Private Limited) that established circumstantial evidence and preponderance of probability as sufficient proof in such cases. The Officer found that the precision of trade execution (same counterparty, same quantity, minimal time gap, significant price differences) indicated prior meeting of minds and collusion to trade at predetermined prices, affecting price discovery and market integrity.

Final Outcome

The Adjudicating Officer found Cube Trafin Private Limited guilty of violating Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations. Under Section 15HA of SEBI Act, 1992, a penalty of ₹5,00,000 (Rupees Five Lakhs only) was imposed—the minimum prescribed amount since no quantifiable disproportionate gains or investor losses were established.

The penalty must be paid within 45 days of order receipt through SEBI's online payment portal. Failure to pay may lead to recovery proceedings under Section 28A of SEBI Act, including attachment and sale of properties.

Topics: SEBI Enforcement, Market Manipulation, Illiquid Stock Options