Date:28/07/2004 URL: http://www.thehindubusinessline.com/2004/07/28/stories/2004072801931500.htm

Back SEBI suspends CSE member

Our Bureau

Kolkata , July 27

THE Securities and Exchange Board of India has suspended Amitabh Sonthalia, a member of the Calcutta Stock Exchange (CSE), for entering into fraudulent transactions to evade regulatory directives that are meant to bring about transparency and ensure proper price discovery.

The broker, the regulator stated, has violated provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 and the Code of Conduct of Stock Brokers specified in Schedule II of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992.

With this, SEBI has found that a penalty recommended earlier by an enquiry officer is adequate. The suspension, ordered by Mr A. K. Batra, a whole-time member, will be relevant for four months.

The broker entered into transactions with Mr Sanjay Khemani, another CSE member, outside the price and order matching mechanism of the exchange. Their volume and value were quite high. These related to scrips such as Satyam, Reliance, Tata Tea, Global Tele and ITC. SEBI had earlier stipulated that all negotiated deals should be executed only on screens within price and order matching systems, just like normal trades. However, the transactions under review did not follow this requirement.

SEBI felt that such deals (involving large quantities and values) do impact the price of securities over a period of time. It found that the impugned transactions were not spot transactions and that these "were intended only to operate as fraud on investors and not to effect any change in beneficial ownership or to contribute towards price discovery."

SEBI, which initially inspected the books of the broker in May 2002, later appointed an enquiry officer for conducting a probe. A show-cause notice was issued in April 2003. A few submissions were made subsequently, explaining that the deals mentioned in the show-cause notice were genuine trades, conducted at market rates prevailing at the time. It was further stated that these were settled for the difference of amount with the broker concerned; no unfair or fraudulent practices were involved.

The value of each deal was over Rs 1 crore. Given such a value (and since the transactions were entered outside the screen-based system), these "did not lend transparency to and distorted the price discovery process." The enquiry officer recommended that the broker's registration be suspended for four months.