Citation Codes

Equivalent Citations

citation codes

Case Number

Adjudication Order No. ORDER/VV/HS/2019-20/7313†

Judges

Vijayant Kumar Verma, Adjudicating Officer

Acts

SECTION 19 SECURITIES AND EXCHANGE BOARD OF INDIA ACT
Rule 4 of the Adjudication Rules read with Section 15-I of the SEBI Act,
OF INDIA ACT, 1992, READ WITH RULE 5 OF THE SEBI
2 of 24 1992, (hereinafter referred to as SEBI Act) read with Section 15-I (1) of the SEBI Act and Rule 3
Rule 5 of the Adjudication Rules
Section 15-I of the SEBI Act, read with Rule 5 of the SEBI Adjudication Rules,
sections 15A to 15E,clauses (b) and (c) of section 15F,15G,15H and 15HA
Rule 4 of the Adjudication Rules read with Section 15-I (1) and (2) of the SEBI Act,

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Smart Summary

Structured Summary of Adjudication Order — M/s. Dev Commodity Brokers Private Limited

Factual and Procedural Background

The Securities and Exchange Board of India (SEBI) initiated adjudication proceedings against M/s. Dev Commodity Brokers Private Limited (the Noticee) for alleged violations of Regulation 3 (a), (b), (c), (d) and Regulations 4(1), 4(2)(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations). The allegations arose from reversal trades in illiquid stock options on BSE Limited that were alleged to be non‑genuine and to have produced artificial volumes.

SEBI issued a Show Cause Notice (SCN) dated February 22, 2019. An Adjudicating Officer (AO) was initially appointed (Shri Jeevan Sonparote) and later the undersigned was appointed as AO on August 13, 2019. The Noticee replied denying allegations and sought documents; SEBI/AO maintained that all relied‑upon records were provided with the SCN. Personal hearing opportunities were provided (including hearings in June 2019 and January 2020); the Noticee's Authorised Representative attended a video‑conference hearing on January 10, 2020 and filed written submissions dated January 13, 2020.

SEBI's investigation covered the period April 01, 2014 to September 30, 2015. SEBI observed large‑scale reversal trades in the stock options segment of BSE; overall findings observed in the investigation included 2,91,643 trades, of which 81.38% were classified as non‑genuine, producing artificial volume of 826.21 crore units (54.68% of market volume in the segment) during the investigation period. The Noticee was found to have traded in 70 unique contracts, executing 155 non‑genuine trades that allegedly generated an artificial volume of 4,862,070 units.

Legal Issues Presented

Whether the Noticee violated the provisions of Regulation 3 (a), (b), (c), (d) and Regulations 4(1), 4(2)(a) of the PFUTP Regulations?
Whether the Noticee is liable for imposition of monetary penalty under Section 15HA of the SEBI Act?
If yes, what should be the quantum of monetary penalty?

Arguments of the Parties

Noticee's Arguments

The Noticee stated it conducts regular trading in cash and derivatives with transparency and that its transactions were bona fide and within legal and exchange frameworks.
It argued that SEBI had not provided complete material/documentation relied upon (invoking principles of natural justice and citing case law such as Gorkha Security Services v. Govt. (NCT of Delhi) and SEBI v. Price Waterhouse).
Pointed to Risk Disclosure Document (RDD) provisions about lower liquidity and wider spreads in illiquid contracts, contending that wider spreads existed in the illiquid contracts in question.
Asserts trades were executed via the anonymous, order‑driven screen trading system; trades were within financial capacity and exchange prudential norms.
Argued no prior meeting of minds or collusion with counterparties; trades were with multiple counterparties (12 different counterparties) and claimed synchronization was coincidental.
Argued that it incurred substantial losses and that incurring loss cannot demonstrate non‑genuineness; cited SAT decisions (e.g., M/s. Jagruti Securities Ltd and Vintel Securities Pvt. Ltd) to suggest collusion must be shown to establish fraudulent trading.

SEBI / Allegations in the SCN

SEBI alleged that the Noticee executed reversal trades (buy then sell or sell then buy back with the same counterparty on the same day) in illiquid stock options which were non‑genuine, lacked trading rationale, and generated artificial volumes, creating a false or misleading appearance of trading.
SEBI's investigation identified widespread reversal trades across the segment and included the Noticee among various entities allegedly engaging in such non‑genuine trading.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gorkha Security Services vs. Govt. (NCT of Delhi), (2014) 9 SCC 105	Cited by the Noticee in support of its contention regarding non‑supply of complete material and natural justice.	The AO noted the Noticee's reliance but recorded that all relied‑upon documents (including trade and order logs) had been provided with the SCN; the AO found the cited case law not applicable in the present matter.
Securities and Exchange Board of India vs. Price Waterhouse (Civil Appeal No. 6003-6004/12)	Cited by the Noticee in relation to its contention on natural justice / documentation.	The AO observed that the documents relied upon were provided in the SCN and therefore the Price Waterhouse citation was not found applicable to negate the proceedings.
SEBI v. Kishore R. Ajmera, AIR 2016 SC 1079	Establishes that in absence of direct proof of meeting of minds, adjudication may rest on preponderance of probabilities inferred from surrounding circumstances (volume, timing, pattern, etc.).	The AO relied on this principle to justify inferring manipulative intent from circumstantial evidence (volume, persistence, proximity of trades), rather than requiring direct proof of collusion.
SEBI vs. Rakhi Trading Private Ltd. (Civil appeals decided February 8, 2018)	Held that synchronization and rapid reverse trades affect price discovery and exclude other investors; such behaviour amounts to fraudulent and unfair trade practices violative of PFUTP Regulations.	The AO relied on this Supreme Court observation to support the conclusion that synchronized rapid reversal trades are manipulative, affect price discovery and justify finding violations of Regulations 3(a), 4(1) and 4(2)(a).
M/s. Jagruti Securities Ltd vs. SEBI (SAT, Appeal No. 184/2008)	Referenced by Noticee to argue that collusion must be shown to establish fraudulent trading.	The AO recorded the Noticee's reliance but proceeded to apply principles allowing inference of intent from trade patterns in screen‑based trading, finding the Noticee's reliance not determinative.
Vintel Securities Pvt. Ltd vs. SEBI (SAT, Appeal No. 219/2009)	Referenced by Noticee in support of the position that synchronization may be incidental.	The AO considered the reference but held that, given the trading pattern and other circumstances, the synchronization indicated manipulative conduct rather than coincidence.
Ketan Parekh vs. SEBI (SAT, Appeal No. 2/2004; SAT order dated July 14, 2006)	SAT observed that intention to manipulate may be inferred from attending circumstances when direct evidence is unavailable.	The AO relied on this observation to support the proposition that manipulative intent can be inferred from trading conduct, pattern and circumstantial factors in screen‑based trading.
Chairman, SEBI vs. Shriram Mutual Fund, [2006] 5 SCC 361	Holds that once statutory contravention is established, penalty is attracted and the intention of the party is irrelevant for imposing penalty.	The AO invoked this authority to support the imposition of monetary penalty upon finding contraventions of PFUTP Regulations, without dependence on proof of subjective intent.

Court's Reasoning and Analysis

The AO proceeded in stages: (i) examined the SCN, the records provided with it and the Noticee's submissions; (ii) summarized SEBI's investigative findings regarding reversal trades in the BSE stock options segment during April 1, 2014 to September 30, 2015; and (iii) analyzed the trading pattern of the Noticee in the context of legal principles and precedents.

Key factual findings relied upon by the AO (as recorded):

SEBI's investigation found that a substantial portion of trades in the Stock Options segment were non‑genuine reversal trades and that these created significant artificial volume across the market.
The Noticee traded in 70 unique contracts and executed 155 trades classified as non‑genuine, allegedly generating artificial volume of 4,862,070 units. In the 70 contracts identified, 100% of the Noticee's trades were classified as non‑genuine, and the volume generated by the Noticee in those contracts was 100% artificial (with contributions to overall market volume ranging from 9% to 100% across contracts).
Specific illustrative examples (e.g., HDFC15APR1350.00CEW1 on 24/03/2015) demonstrated immediate reversal within seconds with significant price differentials between the legs.

Legal and inferential analysis applied:

The AO rejected the Noticee's contention that lack of provision of additional documents vitiated the proceedings, noting that all relied‑upon trade and order logs had been provided with the SCN.
The AO explained the concept of reversal trades and why such trades are considered non‑genuine: immediate reversal with same counterparty, lack of trading rationale, execution at irrational prices and creation of artificial volumes that distort market appearance and price discovery.
Applying the principle from SEBI v. Kishore R. Ajmera, the AO held that in the absence of direct proof of meeting of minds, a conclusion may be drawn on preponderance of probabilities from circumstantial facts (volume, persistence, proximity in time, price differentials, etc.). The AO used such factors to infer manipulative intent.
The AO rejected the Noticee's reliance on the RDD and the argument that illiquidity/wider spreads justified the price differentials, holding that the RDD is a general advisory and does not permit deliberate structuring of manipulative trades lacking economic rationale. The AO noted there were no corresponding changes in underlying stock prices to justify the immediate large price differentials.
The AO relied on the Supreme Court's reasoning in SEBI v. Rakhi Trading Private Ltd. to emphasise that synchronized rapid reverse trades undermine price discovery, exclude other investors and constitute fraudulent/unfair trade practices under PFUTP Regulations.
The AO accepted that manipulative intent may be inferred (citing SAT jurisprudence such as the Ketan Parekh order) and applied that approach to the Noticee's repeated pattern of reversal trades, concluding the pattern was not coincidental but deliberate and manipulative.
Having concluded that the Noticee's trades were manipulative and non‑genuine and violated Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(a), the AO turned to the penalty provisions (Section 15HA) and the factors to be considered under Section 15J (disproportionate gain/unfair advantage, loss caused to investors, and repetitiveness of default).
The AO noted the investigation showed counterparty gains and losses (some notional), the limited public participation in these illiquid contracts, and the repetitive nature of the Noticee's conduct (pattern over multiple days), all of which informed the quantum of penalty.
The AO also relied on the Supreme Court decision in Chairman, SEBI v. Shriram Mutual Fund to underscore that once contravention is established, penalty is attracted irrespective of the party's subjective intention.

Holding and Implications

Holding: The Adjudicating Officer held that the Noticee had indulged in execution of reversal trades in stock options with the same entities on the same day which were non‑genuine, manipulative and deceptive, thereby creating artificial volumes and violating Regulations 3 (a), (b), (c), (d) and 4(1), 4(2)(a) of the PFUTP Regulations, 2003. In exercise of powers under Section 15‑I of the SEBI Act read with Rule 5 of the Adjudication Rules and Section 15HA, the AO imposed a monetary penalty of Rs. 7,60,000 (Rupees Seven Lakh Sixty Thousand Only) on the Noticee.

Implications / Direct Consequences:

The direct legal consequence is the imposition of the specified monetary penalty payable to SEBI (payment instructions provided in the order: demand draft in favour of "SEBI - Penalties Remittable to Government of India, payable at Mumbai" or online payment via SEBI's payment gateway, with procedural instructions for remittance and transmission of payment details).
Failure to pay within 45 days from receipt of the order may trigger recovery proceedings under Section 28A of the SEBI Act, including attachment and sale of assets to realize the penalty with interest.
The AO applied existing judicial authorities (including Supreme Court and SAT precedents) to reach findings; the order does not purport to lay down a novel legal principle beyond application of those precedents. The holding enforces that reversal trades of the kind identified constitute manipulative/unfair/fraudulent trading under PFUTP Regulations and attract penalties under Section 15HA.

Note: This summary is strictly based on the content and citations contained in the adjudication order provided and does not add information or inferences beyond the document's explicit text.

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Adjudication Order, in respect of Dev Commodity Brokers Private Limited in the matter of Its dealings in Illiquid Stock Options at BSE.

OF INDIA ACT, 1992, READ WITH RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995, IN THE ADJUDICATION PROCEEDINGS INITIATED AGAINST M/S. DEV COMMODITY BROKERS PRIVATE LIMITED [PAN: AACCP7267R] IN THE MATTER OF ITS DEALINGS IN ILLIQUID STOCK OPTIONS AT BSE LIMITED. ___________________________________________________________________ BACKGROUND

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), initiated adjudication proceedings against M/s. Dev Commodity Brokers Private Limited (hereinafter referred to as Noticee) for the alleged violation of the provisions of Regulation 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations) for carrying out alleged reversal of trades in illiquid stock options at BSE Limited (hereinafter referred to as BSE) with same entities on the same day. It was alleged that these reversal of trades of the Noticee were non-genuine in nature and have created false and misleading appearance of trading in terms of artificial volumes in the stock options segment of BSE. APPOINTMENT OF ADJUDICATING OFFICER

2. Initially, Shri Jeevan Sonparote was appointed as the Adjudicating Officer (AO) by SEBI, under Section 19 of the Securities and Exchange Board of India Act, Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 2 of 24 1992, (hereinafter referred to as SEBI Act) read with Section 15-I (1) of the SEBI Act and Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as Adjudication Rules) to conduct adjudication proceedings inter-alia in respect of the Noticee, in the manner specified under Rule 4 of the Adjudication Rules read with Section 15-I (1) and (2) of the SEBI Act, and if satisfied that penalty is liable, to impose such penalty deemed fit in terms of Rule 5 of the Adjudication Rules and in terms of Section 15HA of the SEBI Act. Subsequently, in the matter the undersigned has been appointed as AO by SEBI, on August 13, 2019, in the place of Shri Jeevan Sonparote to inquire into and adjudge, the violation alleged to have been committed by the Noticee. SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

3. Show Cause Notice dated February 22, 2019 (hereinafter referred to as SCN) was issued to the Noticee in terms of Rule 4 of the Adjudication Rules read with Section 15-I of the SEBI Act, to show cause as to why an inquiry should not be initiated and penalty should not be imposed under Section 15HA of the SEBI Act, on the Noticee for the alleged violation of Regulation 3 (a), (b), (c), (d) and 4 (1),

4 (2) (a) of PFUTP Regulations.

4. The Noticee vide its letter dated March 19, 2019 denied the allegations mentioned in the SCN and requested to provide certain documents/information. In this regard vide Hearing Notice dated May 20, 2019 the Noticee was informed by the erstwhile AO that the allegations in respect of the Noticee and to substantiate the same, all the relied upon information and records have already been mentioned / provided in the SCN. It is also noted that the alleged violations of the provisions of law and for the same, the penal provisions under which penalty may be liable to be imposed, have been mentioned in the SCN. Apart from information and records provided in the SCN, there are no other information Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 3 of 24 and records being relied upon in respect of the Noticee in the present adjudication proceedings. As regards to case law cited by the Noticee, since all the relied upon information and records has been provided to it, same are not found to be applicable in the present matter.

5. Further vide the aforesaid Hearing Notice the Noticee was provided an opportunity of the personal hearing on June 13, 2019. In this regard the Noticee vide its letter dated June 04, 2019 requested to reschedule the hearing.

6. Subsequent to my appointment as the Adjudicating Officer in the matter, vide Hearing Notice dated December 24, 2019, the Noticee was provided an opportunity of personal hearing on January 08, 2020.

7. Consequently, vide letter dated January 02, 2020, the Noticee requested to arrange the hearing at SEBI Delhi Regional Office through Video Conferencing. The Noticee also requested to provide certain documents/information. In this regard vide email dated January 06, 2020 the Noticee was informed that all the relied upon documents/information have already been provided in the SCN and no other information and records being relied upon in respect of you in the present adjudication proceedings. Further, it was also informed to the Noticee that the venue of the Hearing changed to SEBI Delhi Regional Office through Video Conferencing.

8. Thereafter, the Noticee vide its email dated January 09, 2020 requested to change the date of Hearing to January 10, 2020. Accordingly, the Hearing date changed to January 10, 2020. On January 10, 2020, the Authorised Representative (AR) of the Noticee appeared for personal Hearing at SEBI, Delhi Regional Office on behalf of the Noticee and made the submissions through Video Conferencing. The AR also sought additional time to file detailed written Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 4 of 24 submissions and accordingly he was given time to file the same latest by January 21, 2020.

9. Thereafter, the Noticee vide its letter dated January 13, 2020 filed written submissions in the matter. The excerpts of the aforesaid submissions of the Noticee are inter-alia reproduced hereunder. .

1. It is submitted that the noticee is dealing in stock market regularly in cash and derivative segment and has always maintained high standards of transparency, integrity, honesty and accountability in all its business dealing. The Noticee is dealing in the stock market in fair, transparent and bonafide manner and it has carried out all its transactions in stock options within framework of law governing the security market and abides by all the rules, regulations of SEBI and the Exchanges.

2. It is submitted that there is certain data, documents and information available with SEBI in connection with the matter, which has not been available to the Noticee. The materials based on which the allegations have been alleged against the noticee has not been supplied. Only certain selective information and data have been provided to the noticee and it is contrary to the settled principle of natural justice. In this regard the Noticee has made reference of case laws viz. Order of Honble Supreme Court in the matter of Gorkha Security Services vs. Govt. (NCT of Delhi), (2014) 9 SCC 105 and judgment of Hon'ble Supreme Court in the matter of Securities and Exchange Board of India vs. Price Waterhouse (Civil Appeal No. 6003-6004/12)

3. It is submitted that SEBI has issued a Risk Disclosure Document (RDD) which records the risks of trading on the Exchange. Clauses 1.2 and 1.3 of the Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 5 of 24 RDD deal with Risk of Lower Liquidity and Risk of Wider Spreads. It is also a fact that the illiquid contracts had wider spreads.

4. It is submitted that all the trades executed by the noticee were on the trading terminal of the exchange and orders were matched on anonymous order driven trading system of the exchange. The alleged trades of the noticee were within its financial and risk bearing capacity and in conformity with the framework of laws governing the securities market, hence genuine and bonafide.

5. It is further submitted that all our trades in option segment were within prudential norms of exchange and as per procedures and guidelines as prescribed by regulator (BSE). At the relevant time, none of our trades were questioned by the brokers who are SEBI registered intermediaries.

6. It may also kindly be appreciated that, had SEBI or BSE prescribed some controls and/or procedure for prevention of such reversal trades during the period, the noticee could have effectively avoided the repeated instances of alleged reversal trades which is now being examined by SEBI.

7. It is submitted that the trading volume of the noticee is negligible in view of total alleged reversal trade or consolidated trades executed in derivatives segment at BSE.

8. It is submitted that there was no major movement in price of underlying scrip which itself proves that our trades had no impact on market. Thus, our transactions neither distorted the equilibrium in market nor caused any loss or prejudice to investors at large.

9. It is submitted that the trading in the noticee's account was carried out independently and it is denied that the same have been carried out in Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 6 of 24 connection or collusion with the any counter party or any other entities whatsoever. Most importantly it is highlighted that the trades of the noticee were executed with 12 different counter parties.

10. It is submitted that there was no evidence is available to show that there was prior meeting of mind with any counter party. It is pertinent to submit that there is no evidence to allege that there was any kind of relation between the noticee and any its counter party in connection with alleged reversal trades either during the investigation period or thereafter.

11. In the present matter, SCN has failed to make out prima facie case of manipulative, fraudulent and unfair trade practices.

12. It is submitted that the Noticee had suffered a huge loss in the stock options trading and carrying out trades which happened to make a loss cannot be the basis for saying that the trades were non-genuine. It may be also appreciated that no prudent person can incurred loss for such hefty amount for creation of artificial volume.

13. It is further submitted that, in order to establish charges of fraudulent trading or violation of PFUTP Regulations, it is a settled principle of law that the parties to these trades should collude amongst themselves. In this context the Noticee referred the Order of Honble SAT in the matter of M/s. Jagruti Securities Ltd vs. Securities Exchange Board of India, Appeal No. 184/2008; in the matter of Vintel Securities Pvt. Ltd Vs. SEBI, Appeal No. 219/2009.

14. That the noticee did not employed any device, scheme or artifice to defraud to the investor while dealing in stock options contract at BSE. The dealing in stock option contract by the noticee was not detrimental to the interest of the investors. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 7 of 24

15. It is submitted that the synchronisation of trades with counterparties was co- incidental. The noticee did not executed trades deliberately in stock options with any respective counter party.

16. In view of aforesaid submissions, it is humbly submitted that the noticee had not violated of Regulation 4(1) and 4(2)(a) of the SEBI (Prohibition of fraudulent and unfair trade practices relating to securities market) Regulations, 2003. . ISSUES FOR CONSIDERATION AND FINDINGS

10. I have carefully perused the SCN, the documents / material available on record and submissions of the Noticee. The issues that arise for consideration in the present case are:

1) Whether the Noticee violated the provisions of Regulation 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of PFUTP Regulations?

2) Whether the Noticee is liable for imposition of monetary penalty under Section 15HA of the SEBI Act?

3) If yes, then what should be the quantum of monetary penalty?

11. It is pertinent to mention here the relevant provisions of Regulation 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of PFUTP Regulations, allegedly violated by the Noticee:- Regulation 3. Prohibition of certain dealings in securities. No person shall directly or indirectly (a) buy, sell or otherwise deal in securities in a fraudulent manner; Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 8 of 24 (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices. (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: (a) indulging in an act which creates false or misleading appearance of trading in the securities market;

12. It is preliminary contention of the Noticee that the complete material / documents in support of the allegation in the SCN have not been made available to the Noticee. In this regard, it is noted that all the relied upon documents including trade and order logs for the alleged non-genuine trades have been provided along with the SCN and no other material / documents have be relied upon unless the Noticee is given a copy thereof and also given opportunity to explain the circumstances appearing against it. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 9 of 24

13. I note that the allegations levelled in the SCN are mainly to the effect that the Noticee has created false and misleading appearance of trading in terms of artificial volumes in the stock options segment of BSE by way of reversal of trades in illiquid stock options and thereby the Noticee violated the provisions of Regulation 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of PFUTP Regulations.

14. SEBI had observed large scale reversal of trades in the Stock Options Segment of BSE leading to creation of artificial volumes. Therefore, SEBI conducted investigation into the trading activity in illiquid Stock Options at BSE for the period from April 01, 2014 to September 30, 2015 (hereinafter referred to as "Investigation Period").

15. Reversal trades have been considered those trades in which an entity reverses its buy or sell positions in a contract with subsequent sell or buy positions with the same counterparty during the same day. The said reversal trades are non- genuine trades as they are not executed in normal course of trading, lack basic trading rationale, and allegedly lead to false or misleading appearance of trading in terms of generation of artificial volume, hence, are deceptive and manipulative. Artificial volume is considered to be the volume (no. of units) reversed in both legs of said reversal trades while keeping out the volume, if any, which is not reversed.

16. Pursuant to investigation, it was observed that during the investigation period, total 2,91,643 trades comprising substantial 81.38% of all the trades executed in Stock Options Segment of BSE were non-genuine trades. The aforesaid non- genuine trades resulted into creation of artificial volume to the tune of 826.21 crore units or 54.68% of the total market volume in Stock Options segment of BSE during the investigation period. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 10 of 24

17. It was observed that said non-genuine trades were not restricted to any specific contract or between any specific set of entities. It was observed that the Noticee was one of the various entities which were allegedly indulged in execution of non- genuine trades in Stock Options Segment of BSE during the investigation period. The following points narrate the dealings of the Noticee during the investigation period and the allegations against it for execution of non-genuine trades in illiquid stock options at BSE.

18. As regards all the dealings of the Noticee in the Stock Options segment of BSE during the investigation period, it was observed that the Noticee had traded in total 70 unique contracts. In the said 70 contracts it allegedly executed 155 non- genuine trades, which resulted in artificial volume of total 48,62,070 units.

19. For the purpose of understanding, the trading pattern of the Noticee in the aforementioned 70 contracts in respect of non-genuine trades and artificial volume created by the Noticee, are illustrated through the dealings of the Noticee in the contract viz, HDFC15APR1350.00CEW1 as under: Trade Date Client Name CP Client Name Trade Time Trade Rate Traded Quantity 24/03/2015 SATSAHIB SECURITIES PRIVATE LIMITED DEV COMMODITY BROKERS PRIVATE LIMITED 13:18:35.954742 23.50 12000 24/03/2015 DEV COMMODITY BROKERS PRIVATE LIMITED SATSAHIB SECURITIES PRIVATE LIMITED 13:18:43.648173 10.55 12000 24/03/2015 SANJAY RASTOGI DEV COMMODITY BROKERS PRIVATE LIMITED 14:39:29.743158 23.00 10000 24/03/2015 DEV COMMODITY BROKERS PRIVATE LIMITED SANJAY RASTOGI 14:39:37.843627 13.25 10000 (a) I note that during the investigation period, total 16 trades for 2,34,000 units were executed in the said contract, wherein Noticee was party to 4-trades for total 44,000 units on March 24, 2015. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 11 of 24 (b) While dealing in the said contract on March 24, 2015, Noticee, at 13:18:35 hrs entered into sell trade for 12000 units at premium rate of Rs.23.50 per unit with counterparty viz, Satsahib Securities Pvt Ltd. Immediately, within a short interval of 8 seconds from the above trade, at 13:18:43 hrs, Noticee reversed the above trade by entering into buy trade for 12000 units with same counterparty at premium rate of Rs.10.55 per unit. On the same day, Noticee similarly entered into one more set of reversal trades. Noticee, at 14:39:29 hrs entered into sell trade for 10000 units at premium rate of Rs.23.00 per unit with Sanjay Rastogi, and within 8 seconds of the above trade, Noticee at 14:39:37 hrs reversed the above trade by entering into buy trade with same counterparty for 10000 units at premium rate of Rs. 13.25 per unit. (c) From the above, it is noted that while dealing in the said contract, Noticee executed total 4 reversal trades (2 sell trades + 2 buy trades) with same respective counterparties viz, Satsahib Securities Pvt Ltd and Sanjay Rastogi. It is also noted that the said trades were reversed in short interval with significant price difference in buy and sell rates. (d) Thus, Noticee, through its dealing in the contract viz, HDFC15APR1350.00CEW1, executed 4 non genuine trades which is 25% of the total trades from the market in the said contract during the investigation period, and thereby, Noticee generated artificial volume of total 44,000 units which is 19% of the volume traded in the said contract from the market.

20. Similarly, Noticee indulged in execution of non-genuine trades and generation of artificial volumes in other contracts during the investigation period. I note that the Noticee had executed 155 non-genuine trades in 70 unique contracts and created artificial volume of total 48,62,070 units. Summary of dealings of the Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 12 of 24 Noticee in the said 70 Stock Options contracts, in which it executed non-genuine trades during the investigation period, are as follows: S. No. Contract Name Avg. Buy Rate (Rs.) Total Buy Volume (no. of units) Avg. Sell Rate (Rs.) Total Sell Volume (no. of units) Numbe r of non genuin e trades execut ed by Noticee in the Contra ct Total number of trades execut ed by Noticee in the Contra ct Total number of trades execut ed in the contrac t Artificial volume generated by Noticee in the Contract (D+F) Total volume generate d by Noticee in the Contract Total volume in the Contract % of Non Genuine trades of Noticee in the contract to Noticees Total trades in the Contract (G/H) % of Non Genuine trades of Entity in the contract to Total trades in the Contract (G/I) % of Artificial Volume generate d by Noticee in the contract to Noticees Total Volume in the Contract (J/K) % of Artificial Volume generate d by Noticee in the contract to Total Volume in the Contract (J/L) A B C D E F G H I J K L M N O P 1 ABNV15APR1650.00CE W1 8.25 15000 18.00 15000 2 2 12 30000 30000 188000 100% 17% 100% 16% 2 ACCL15APR1590.00CEW 1 6.50 15000 21.25 15000 2 2 12 30000 30000 190000 100% 17% 100% 16% 3 AMBC15APR260.00PEW 2 5.25 45000 10.90 45000 2 2 6 90000 90000 310000 100% 33% 100% 29% 4 AMTK15APR135.00PEW 2 2.75 30000 6.90 30000 2 2 4 60000 60000 160000 100% 50% 100% 38%

5 APLT15APR160.00CEW1 1.25 54000 4.30 54000 2 2 14 108000 108000 704000 100% 14% 100% 15%

6 ARVI15APR240.00CEW1 14.45 156000 27.02 156000 5 5 15 312000 312000 1012000 100% 33% 100% 31%

7 ARVI15APR270.00CEW1 0.50 45000 2.90 45000 2 2 12 90000 90000 370000 100% 17% 100% 24% 8 AUPL15APR1170.00CEW 1 21.00 20000 29.00 20000 2 2 14 40000 40000 270000 100% 14% 100% 15% 9 AUPL15APR1170.00PEW 2 13.00 15000 27.75 15000 2 2 4 30000 30000 60000 100% 50% 100% 50%

10 AXIS15APR560.00CEW1 4.50 25000 9.25 25000 2 2 10 50000 50000 344000 100% 20% 100% 15% 11 BAJT15APR2040.00CEW 1 15.25 15000 22.00 15000 2 2 14 30000 30000 219000 100% 14% 100% 14% 12 BATA15APR1170.00CEW 1 12.25 20000 18.90 20000 2 2 16 40000 40000 324000 100% 13% 100% 12%

13 BHEL15APR240.00CEW1 1.25 45000 4.15 45000 2 2 16 90000 90000 846000 100% 13% 100% 11% 14 BHFL15APR1320.00CEW 1 7.00 25000 12.45 25000 2 2 12 50000 50000 266000 100% 17% 100% 19% 15 BHRT15APR390.00CEW 1 5.25 40000 10.90 40000 2 2 10 80000 80000 350000 100% 20% 100% 23%

16 BHRT15APR390.00PEW2 2.05 45000 5.75 45000 2 2 8 90000 90000 380000 100% 25% 100% 24%

17 BIOC15APR440.00CEW1 1.05 25000 4.90 25000 2 2 14 50000 50000 436000 100% 14% 100% 11%

18 BOBL15APR170.00CEW1 0.10 50000 1.95 50000 2 2 20 100000 100000 907500 100% 10% 100% 11%

19 BPCL15APR720.00CEW1 24.00 35000 31.70 35000 2 2 16 70000 70000 426000 100% 13% 100% 16% 20 CANB15APR380.00CEW 1 2.00 35000 5.95 35000 2 2 12 70000 70000 500000 100% 17% 100% 14% 21 CARN15APR205.00CEW 1 11.10 27000 21.05 27000 2 2 9 54000 54000 544000 100% 22% 100% 10% 22 CARN15APR220.00CEW 1 0.55 35000 3.25 35000 2 2 12 70000 70000 534000 100% 17% 100% 13% 23 CENT15APR560.00CEW 1 7.00 20000 13.50 20000 2 2 18 40000 40000 436000 100% 11% 100% 9%

24 CENT15APR560.00PEW2 2.25 18000 8.00 18000 2 2 8 36000 36000 210000 100% 25% 100% 17% 25 CESC15APR600.00CEW 1 8.05 25000 12.95 25000 2 2 10 50000 50000 230000 100% 20% 100% 22%

26 CIPL15APR700.00CEW1 13.00 20000 19.95 20000 2 2 12 40000 40000 250000 100% 17% 100% 16% Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 13 of 24 S. No. Contract Name Avg. Buy Rate (Rs.) Total Buy Volume (no. of units) Avg. Sell Rate (Rs.) Total Sell Volume (no. of units) Numbe r of non genuin e trades execut ed by Noticee in the Contra ct Total number of trades execut ed by Noticee in the Contra ct Total number of trades execut ed in the contrac t Artificial volume generated by Noticee in the Contract (D+F) Total volume generate d by Noticee in the Contract Total volume in the Contract % of Non Genuine trades of Noticee in the contract to Noticees Total trades in the Contract (G/H) % of Non Genuine trades of Entity in the contract to Total trades in the Contract (G/I) % of Artificial Volume generate d by Noticee in the contract to Noticees Total Volume in the Contract (J/K) % of Artificial Volume generate d by Noticee in the contract to Total Volume in the Contract (J/L) 27 COAL15APR370.00CEW 1 1.25 45000 4.75 45000 2 2 14 90000 90000 656000 100% 14% 100% 14% 28 CRGL15APR165.00CEW 1 0.45 50000 2.90 50000 2 2 12 100000 100000 630000 100% 17% 100% 16% 29 CRGL15APR185.00PEW 3 13.10 24000 23.50 24000 2 2 2 48000 48000 48000 100% 100% 100% 100%

30 DIVI15APR1800.00CEW1 18.50 12500 29.25 12500 2 2 14 25000 25000 216000 100% 14% 100% 12%

31 DLFL15APR160.00CEW1 2.05 48000 4.55 48000 2 2 16 96000 96000 836000 100% 13% 100% 11% 32 DRRL15APR3450.00CE W1 69.88 40000 66.81 40000 4 4 14 80000 80000 220000 100% 29% 100% 36%

33 FEDB15APR140.00CEW1 0.10 80000 0.95 80000 2 2 8 160000 160000 552000 100% 25% 100% 29%

34 GAIL15APR390.00CEW1 0.90 93000 4.18 93000 4 4 16 186000 186000 712000 100% 25% 100% 26%

35 GOIL15APR340.00CEW1 1.05 35035 3.55 35035 2 2 10 70070 70070 340340 100% 20% 100% 21%

36 HDBK15APR1020.00CE 28.00 25000 40.25 25000 2 2 16 50000 50000 459000 100% 13% 100% 11%

37 HDBK15APR1020.00PE 20.00 30000 39.25 30000 2 2 40 60000 60000 411000 100% 5% 100% 15% 38 HDBK15APR1050.00CE W1 9.55 15000 20.15 15000 2 2 14 30000 30000 304000 100% 14% 100% 10%

39 HDBK15APR1050.00PE 33.00 25000 53.75 25000 2 2 16 50000 50000 518000 100% 13% 100% 10%

40 HDBK15APR1080.00PE 54.00 25000 70.30 25000 2 2 4 50000 50000 172000 100% 50% 100% 29%

41 HDBK15APR1110.00CE 3.00 25000 12.30 25000 2 2 2 50000 50000 50000 100% 100% 100% 100%

42 HDBK15APR1110.00PE 80.25 28000 95.35 28000 2 2 6 56000 56000 298000 100% 33% 100% 19%

43 HDBK15APR1140.00CE 1.00 25000 9.60 25000 2 2 2 50000 50000 50000 100% 100% 100% 100%

44 HDBK15APR1140.00PE 105.00 25000 124.7 5 25000 2 2 2 50000 50000 50000 100% 100% 100% 100%

45 HDBK15APR960.00CE 76.25 25000 90.00 25000 2 2 2 50000 50000 50000 100% 100% 100% 100%

46 HDBK15APR960.00PE 4.75 25000 15.60 25000 2 2 2 50000 50000 50000 100% 100% 100% 100%

47 HDBK15APR990.00CE 50.25 25000 62.00 25000 2 2 8 50000 50000 560000 100% 25% 100% 9%

48 HDBK15APR990.00PE 10.00 25000 25.25 25000 2 2 2 50000 50000 50000 100% 100% 100% 100% 49 HDFC15APR1350.00CE W1 11.78 22000 23.27 22000 4 4 16 44000 44000 234000 100% 25% 100% 19%

50 HDFC15APR1380.00PE 115.05 22000 130.9 0 22000 2 2 2 44000 44000 44000 100% 100% 100% 100% 51 HERO15APR2650.00CE W1 8.50 15000 19.00 15000 2 2 14 30000 30000 225000 100% 14% 100% 13%

52 HPCL15APR640.00CEW1 4.39 75000 9.00 75000 4 4 15 150000 150000 470000 100% 27% 100% 32%

53 HULL15APR900.00CEW1 5.69 60000 11.12 60000 4 4 14 120000 120000 390000 100% 29% 100% 31%

54 IBHF15APR560.00CEW1 2.35 40000 7.90 40000 2 2 14 80000 80000 400000 100% 14% 100% 20%

55 ICIC15APR320.00CEW1 0.25 50000 2.35 50000 2 2 16 100000 100000 720000 100% 13% 100% 14%

56 INGL15APR420.00CEW1 1.10 40000 4.80 40000 2 2 12 80000 80000 520000 100% 17% 100% 15%

57 IOCL15APR350.00CEW1 1.35 48000 4.00 48000 2 2 14 96000 96000 506000 100% 14% 100% 19% Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 14 of 24 S. No. Contract Name Avg. Buy Rate (Rs.) Total Buy Volume (no. of units) Avg. Sell Rate (Rs.) Total Sell Volume (no. of units) Numbe r of non genuin e trades execut ed by Noticee in the Contra ct Total number of trades execut ed by Noticee in the Contra ct Total number of trades execut ed in the contrac t Artificial volume generated by Noticee in the Contract (D+F) Total volume generate d by Noticee in the Contract Total volume in the Contract % of Non Genuine trades of Noticee in the contract to Noticees Total trades in the Contract (G/H) % of Non Genuine trades of Entity in the contract to Total trades in the Contract (G/I) % of Artificial Volume generate d by Noticee in the contract to Noticees Total Volume in the Contract (J/K) % of Artificial Volume generate d by Noticee in the contract to Total Volume in the Contract (J/L)

58 IRBI15APR250.00CEW1 0.80 45000 3.00 45000 2 2 8 90000 90000 360000 100% 25% 100% 25% 59 JBFW15APR1590.00CE W1 7.50 15000 27.95 15000 2 2 14 30000 30000 245000 100% 14% 100% 12%

60 JSWL15APR920.00CEW1 8.00 18000 17.90 18000 2 2 14 36000 36000 330000 100% 14% 100% 11% 61 JUST15APR1380.00CEW 1 21.00 12500 32.20 12500 2 2 14 25000 25000 228000 100% 14% 100% 11%

62 LICH15APR450.00CEW1 4.50 25000 7.60 25000 2 2 14 50000 50000 586000 100% 14% 100% 9% 63 MCRS15APR240.00CEW 1 2.50 30000 6.00 30000 2 2 8 60000 60000 340000 100% 25% 100% 18% 64 NMDC15APR130.00CEW 1 0.10 74000 1.95 74000 4 4 10 148000 148000 580000 100% 40% 100% 26% 65 PGCL15APR150.00CEW 1 0.30 50000 2.50 50000 2 2 8 100000 100000 376000 100% 25% 100% 27% 66 RANB15APR800.00CEW 1 11.50 15000 19.90 15000 2 2 16 30000 30000 320000 100% 13% 100% 9% 67 RCAP15APR450.00CEW 1 2.40 45000 8.90 45000 2 2 20 90000 90000 724000 100% 10% 100% 12%

68 SESA15APR175.00CEW1 13.50 26000 23.10 26000 2 2 6 52000 52000 132000 100% 33% 100% 39%

69 SESA15APR210.00PEW2 8.90 25000 17.50 25000 2 2 4 50000 50000 90000 100% 50% 100% 56%

70 SESA15APR215.00PEW3 13.90 28000 23.50 28000 2 2 2 56000 56000 56000 100% 100% 100% 100%

21. From the details in the above table, following is noted as regards to dealings of the Noticee in the aforesaid 70 contracts:

a) Noticee has executed non-genuine trades in above 70 contracts, wherein, 100% trades of the Noticee were non-genuine trades.

b) The number of non-genuine trades of the Noticee has significantly contributed (in the range of 5% to 100%) to the total number of trades from the market in the above 70 contracts.

c) A substantial 100% of volume generated by the Noticee in the said 70 contracts was artificial volume. Further, artificial volume generated by the Noticee also contributed significantly (in the range of 9% to 100%) to the total volume of the market in the said 70 contracts. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 15 of 24

d) Non-genuine trades executed by the Noticee in above 70 contracts had significant differential in buy rates and sell rates considering that the trades were reversed on same day and with the same counter party.

22. From the above trading pattern of the Noticee, I note that the Noticee had bought and sold option contracts with the same counter parties and also reversed its trades on the same day, from its earlier buy / sell trades, at substantial price difference. Such pattern of dealings suggests beyond doubt that they were not driven by market factors as none of the parameters like underlying stock price, volatility, etc.

23. The Noticee has contended that its trading volume is negligible in view of total alleged reversal trade or consolidated trades executed in derivatives segment at BSE. In this regard, it is noted that the Noticee executed non-genuine trades in

70 contracts, wherein it executed total 155 non-genuine trades, which resulted in artificial volume of total 48,62,070 units. In all 70 contracts, 100% trades of the Noticee were non-genuine. The number of non-genuine trades of the Noticee had contributed significantly (in the range of 5% to 100%) to the total number of trades from the market in the said 70 contracts. A substantial 100% of volume generated by the Noticee in 70 contracts was artificial volume. Further, artificial volume generated by the Noticee also contributed to significant (in the range of 9% to 100%) to the total volume from the market in the said 70 contracts. Non-genuine trades executed by the Noticee in above contracts had significant differential in buy rates and sell rates considering that the trades were reversed on same day. Considering the fact that all these reversal transactions were carried out through a screen based trading platform on a segment with different contracts, the repeated sell/buy of illiquid stock options by the Noticee and subsequent reversal trades with the same set of entities for the same quantity, on same day with a significant difference in buy and sell value of stock options, in itself, exhibits abnormal market behavior and defies economic rationality. I note from the above trading pattern of the Noticee that it was deliberately making blatant misuse of Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 16 of 24 trading platform for creating artificial volume to the tune of 48,62,070 units in the

70 stock options. Therefore, I note that the aforesaid trades of the Noticee were non-genuine and have created false or misleading appearance of trading in terms of artificial volume in stock options and therefore manipulative, deceptive in nature.

24. It is not mere a coincidence that Noticee could match his trades with the same counterparty with whom he had undertaken first leg of the respective trades. This is the outcome of meeting of minds elsewhere and it was a deliberate attempt to deal in such a fashion. Here I would like to rely on the judgment of Honble Supreme Court in SEBI v Kishore R Ajmera (AIR 2016 SC 1079), wherein it was held that in the absence of direct proof of meeting of minds elsewhere in synchronized transactions, the test should be one of preponderance of probabilities as far as adjudication of civil liability arising out of the violation of the Act or provision of the Regulations is concerned. The conclusion has to be gathered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors. The illustrations are not exhaustive. It was further held that It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 17 of 24

25. The Noticee has submitted that SEBI has issued a Risk Disclosure Document (RDD) which records the risks of trading on the Exchange. Clauses 1.2 and 1.3 of the RDD deal with Risk of Lower Liquidity and Risk of Wider Spreads. It is also a fact that the illiquid contracts had wider spreads. In this context, I note that RDD is a document in the nature of general advisory to investors dealing in derivatives markets considering that derivatives products are complex, risky and high leverage products. Such a document in any case does not either implicitly or explicitly permit deliberate structuring of manipulative trades which lack economic rationale and run contrary to the dynamics of price discovery in option trading. I note that derivative contracts by its very nature derives its value from various factors including underlying price. The transactions of the Noticee as mentioned in above paras demonstrates that option contracts bought / sold were immediately reversed on same day at substantially different price, though there was no corresponding price changes in the underlying stock price. Further, analysis of such trades also indicates that price differentials have been deliberately structured for manipulative purposes as one party to the contract had deliberately foregone profitable proposition at the time of executing trade. Such pattern completely runs contrary to economic rationale of any investor. Had the counterparties for trades of the Noticee were different, intraday squaring of positions would not have been possible as no genuine counter party investor would ever forego profits. The fact that the counterparties are same, corroborates that the trades were not genuine and executed for manipulative purposes. Therefore, I find no merit in the submission of the Noticee that the impugned reversal of trades are genuine in nature.

26. The Noticee has further contended that it did not employed any device, scheme or artifice to defraud to the investor while dealing in stock options contract at BSE. The dealing in stock option contract by the noticee was not detrimental to the interest of the investors. In this regard, it is noted that the scheme, plan, device and artifice employed by the Noticee in this case of executing reversal trades in Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 18 of 24 illiquid stock options contracts at irrational, unrealistic and unreasonable prices, tantamount to fraud on the securities market in as much as it involves non- genuine/ manipulative transactions in securities and misuse of the securities market mechanism. The non-genuine and deceptive transactions of the Noticee are covered under the definition of 'fraud' and the dealings of the Noticee as discussed herein above were fraudulent, as defined under regulation 2 (1) (c) of PFUTP Regulation and prohibited under the provisions of Regulations 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) PFUTP Regulations, thereof.

27. Further, with respect to the reversal of trades carried out by the Noticee, I note that the Honble Supreme Court in the matter of SEBI vs. Rakhi Trading Private Ltd., in Civil appeals no., 1969 of 2011 with Civil Appeal Nos., 3174-3177 of 2011 and Civil Appeal No., 3180 of 2011 decided on February 8, 2018 had observed that the price discovery system itself was affected by synchronization and rapid reverse trade, which also had the impact of excluding other investors from participating in the market. The Supreme Court, therefore found that the traders having engaged in a fraudulent and unfair trade practice while dealing in securities, are hence liable to be proceeded against for violation of Regulations 3(a), 4(1) and 4(2)(a) of PFUTP Regulations. The Apex Court also observed that considering the reversal transactions, quantity, price and time and sale, parties being persistent in the number of such trade transactions with huge price variations, it will be too nave to hold that the transactions are through screen- based trading and hence anonymous. Such conclusion would be over-looking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals as per the Board's circular. The impugned transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities.

28. The Noticee contended that there was no evidence is available to show that there was prior meeting of mind with any counter party. It is further submitted that there Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 19 of 24 is no evidence to allege that there was any kind of relation between the noticee and any its counter party in connection with alleged reversal trades. The Noticee has made reference of certain case laws decided by the Honble Securities Appellate Tribunal (SAT) viz. in the matter of M/s. Jagruti Securities Ltd vs. Securities Exchange Board of India, Appeal No. 184/2008; in the matter of Vintel Securities Pvt. Ltd Vs. SEBI, Appeal No. 219/2009. The Noticee submitted that the synchronization of trades with counterparties was co- incidental. The noticee did not executed trades deliberately in stock options with any respective counter party.

29. In respect of the aforesaid contentions of the Noticee, I note that in the screen based trading, the manipulative or fraudulent intent can be inferred from various factors such as conduct of the party, pattern of transactions, etc. Further, in the absence of direct proof of meeting of minds, the conclusion can be derived from various circumstances like volume of trade, period of persistence of trading, particulars of buy and sell orders, proximity of time and such other relevant factors. In this regard, it is appropriate to refer to the Honble SAT Order dated July 14, 2006, in the case of Ketan Parekh vs. SEBI (Appeal no. 2/2004), wherein, Honble SAT has observed that: in order to find out whether a transaction has been executed with the intention to manipulate the market or defeat its mechanism, will depend upon the intention of the parties which could be inferred from the attending circumstances of the cases, because direct evidence in such cases may not be available.

30. In line with the aforesaid findings of Honble SAT, I note that the trading pattern of the Noticee in terms of volume of reversal trades, proximity of buy/sell and subsequent reversal evidences the indulgence of the Noticee beyond a reasonable doubt of the manipulative intent in creation of artificial volume. Further, consistent pattern of dealings by Noticee in such options contracts which are illiquid clearly demonstrates the manipulative intent to use stock exchange Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 20 of 24 platform to carry out non-genuine trades with the aim to execute such trades for various manipulative purposes. I note from the trading pattern of the Noticee that the counterparties to the trades of the Noticee making repeated loss through its reversal trades in stock options which does not make any economic sense and it is a blatant misuse of trading platform for creating artificial volume in the illiquid stock options. I note that the rationale for such transactions entered by the Noticee is not genuine and legitimate as the behaviour exhibited by the Noticee defies the logic and basic economic sense.

31. In this regard, reliance is placed upon the judgement of Honble Supreme Court in the matter of SEBI vs. Rakhi Trading Private Ltd. (supra) where Apex Court stated at Para 35 and Para 41 of that said Order that The platform of the stock exchange has been used for a non-genuine trade. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in pre-planned and rapid reverse trades, it is not genuine; it is an unfair trade practice. The stock market is not a platform for any fraudulent or unfair trade practice. The field is open to all the investors. By synchronization and rapid reverse trade, as has been carried out by the traders in the instant case, the price discovery system itself is affected. Except the parties who have pre-fixed the price nobody is in the position to participate in the trade. It also has an adverse impact on the fairness, integrity and transparency of the stock market.

32. Keeping in mind the dicta of the Honble Supreme Court as reproduced above, I see no reason to take a different view in the present case. Therefore, I hold that the Noticee had indulged in execution of reversal trades in Stock Options with same entities on the same day, which are non-genuine in nature and had created false or misleading appearance of trading in terms of artificial volumes.

33. In view of the forgoing, I conclude that the Noticee by indulging in reversal of trades on the stock exchange platform, which are manipulative / unfair / fraudulent / non-genuine, in nature, had created artificial volumes in the stock Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 21 of 24 options contracts and thereby Noticee had violated the provisions of Regulations

3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of PFUTP Regulations, 2003. The aforesaid violation of PFUTP Regulations by the Noticee attract monetary penalty under Section 15HA of the SEBI Act, which at the time of the violation committed by the Noticee, inter-alia reads as follows: Penalty for fraudulent and unfair trade practices. 15HA. If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty which shall not be less than five lakh rupees but which may extend to twenty - five crore rupees or three times the amount of profits made out of such practices, whichever is higher.

34. While determining the quantum of penalty under Section 15HA of the SEBI Act, it is important to consider the factors stipulated in Section 15J of the SEBI Act, which reads as under:- 15J - Factors to be taken into account by the adjudicating officer While adjudging quantum of penalty under section 15-I, 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 Explanation For the removal of doubts, it is clarified that the power of an adjudicating officer to adjudge the quantum of penalty under sections 15A to 15E,clauses (b) and (c) of section 15F,15G,15H and 15HA shall be and shall always be deemed to have been exercised under the provisions of this section. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 22 of 24

35. At this juncture, reliance is placed upon the Order of the Honble Supreme Court in the matter of Chairman, SEBI Vs Shriram Mutual Fund {[2006]5 SCC 361} where the Honble Supreme Court of India held that:- In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant..

36. As established above, the trades by the Noticee were non-genuine in nature and created a misleading appearance of trading in illiquid stock option contracts. Investigation has shown amount of profit / loss of the counterparties to the trades as a result of the non-genuine trades. However, I note that the Noticee indulged in creation of artificial volumes by way of reversal of trades in illiquid options contracts, where wider market participation was not involved in the trades, and the trades are such that one of the counterparty books a profit while the other counterparty books a loss. Hence, it would be appropriate to consider the impact of these transactions between the two counterparties in totality. It is worth considering that entities involved in the non-genuine trades have either booked gains or loss and the gains or loss appears to be of notional in nature. It is further noted that there was nil or negligible participation by the public in the trading in illiquid stock option contracts, hence the impact of artificial volume created by the Noticee has been considered. As observed in the preceding paragraphs the Noticee executed non-genuine trades in 70 contracts, wherein it executed total

155 non-genuine trades, which resulted in artificial volume of total 48,62,070 units. Non-genuine trades executed by the Noticee in above contracts had significant differential in buy rates and sell rates considering that the trades were reversed on same day and with the same counterparty. This pattern of trades continued for 5 days, which demonstrates the repetitive nature of default on Noticees part. Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 23 of 24

37. Such trading pattern of the Noticee, which was fraudulent and deceptive, affects the normal price discovery mechanism in the securities market. People who indulge in manipulative, fraudulent and deceptive transaction, or abet the carrying out of such transaction which are fraudulent and deceptive should be suitably penalized for such acts of omissions and commissions. ORDER

38. After Taking into consideration the nature and gravity of the charges established in the preceding paragraphs, factors mentioned under Section 15J of the SEBI Act and in exercise of the powers conferred upon me under Section 15-I of the SEBI Act, read with Rule 5 of the SEBI Adjudication Rules, I hereby impose a penalty of Rs.7,60,000/- (Rupees Seven Lakh Sixty Thousand Only) on the Noticee viz. M/s. Dev Commodity Brokers Private Limited in terms of Section 15HA of the SEBI Act, for the violation of the provisions of Regulations 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a) of PFUTP Regulations for indulging in execution of reversal trades in Stock Options with same entities on the same day, thereby creating artificial volume, leading to false and misleading appearance of trading in the illiquid stock options at BSE. PENALTY PAYMENT OPTIONS

39. The amount of penalty shall be paid either by way of demand draft in favour of SEBI - Penalties Remittable to Government of India, payable at Mumbai, or by online payment through following path at SEBI website www.sebi.gov.in ENFORCEMENT Orders Orders of AO Click on PAY NOW or at link https://siportal.sebi.gov.in/intermediary/AOPaymentGateway.html. In case of any difficulties in payment of penalties, the Noticees may contact the support at portalhelp@sebi.gov.in Adjudication Order in respect of Dev Commodity Brokers Private Limited. Page 24 of 24

40. The said demand draft and its details OR details of online payments made (in the format as given in table below) should be forwarded to The Division Chief, (Enforcement Department-1, Division of Regulatory Action -1), the Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4 A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051 and also send an email to tad@sebi.gov.in with the following details:

1. Case Name :

2. Name of Payee :

3. Date of Payment:

4. Amount Paid :

5. Transaction No. :

6. Bank Details in which payment is made :

7. Payment is made for : (like penalties/ disgorgement/ recovery/ settlement amount and legal charges along with order details)

41. In the event of failure to pay the said amount of penalty within 45 days of the receipt of this Order, recovery proceedings may be initiated under section 28A of the SEBI Act, for realization of the said amount of penalty along with interest thereon, inter alia, by attachment and sale of movable and immovable properties.

Adjudication Order, in respect of Dev Commodity Br...