Last week, SEBI issued an order
involving synchronised trading in the scrips of Adani Exports Ltd. The case involves a sharp spike in the price of the shares, more than doubling during a one-month period in November-December 2003. SEBI’s investigation revealed possible synchronised reversal of trades by certain individuals and entities that may have contributed to the price movement. While finding a violation of the SEBI Regulations against fraudulent and unfair trading practices, SEBI imposed a 2-year ban on certain persons from accessing the capital markets. SEBI’s reasoning is as follows:
g. The … facts demonstrate that the orders of most of the trades entered by the noticees were punched in with preconceived motive and prior arrangement that the orders would be picked up by a particular client of the group on the opposite side. I note that there is startling proximity in the time of entering of orders at the identical price and quantity resulting into the matching of the trades. This clearly indicates synchronization while entering the orders, even as these were executed on the screen of the exchange. A large number of trades got matched regularly. It is a known fact that persons who are unknown to each other cannot trade continuously by entering orders in such a pattern. It is difficult to accept that several different orders placed on various days always matched with the same entity and were also reversed with them, by mere co-incidence. The execution of synchronized/ reverse trades repeatedly for several days by the noticees reveals a definite nexus amongst them. I note that the orders placed by the noticees had split into multiple trades; however, the volumes generated by such trades have created substantial number of artificial trades in the market. I observe that the noticees had indulged in the trading pattern as discussed above with regularity, which also projected volumes in the scrip in a way that was not market determined, rather with a hidden motive to induce innocent investors to enter the market. Such transactions are clearly not genuine and seen to have been entered by the noticees for creating misleading appearance of trading in the scrip.
h. … In the present case, the reversal of trades on several days clearly reveals manipulative intent. Additionally, these transactions, apart from creating artificial volume of trading, also influenced the prices, by giving an impression to others that the scrip is being actively traded at prevailing prices.
This is consistent with SEBI’s previous approach on synchronised trades. While synchronised trades per se do not appear to be objectionable, they could trigger the SEBI Regulations against fraudulent and unfair trade practices when they are coupled with manipulative intent and are entered into only with a view to artificially moving the price of the stock.