Synchronised Trades Per Se Not Illegal

There is
no prohibition on synchronised trading in securities, so long as the securities
are delivered and that the transaction has not been effected with manipulative
intent to artificially move the price of the stock. This position has been
reiterated in a recent order
of the Securities Appellate Tribunal (SAT) involving Subhkam Securities Private
Limited. The relevant portions of the order are extracted below:
transactions were executed at the prevailing market price and there is no allegation
of price manipulation.  The trades were
carried out on the floor of the exchange and there was transfer of beneficial
ownership in all the transactions. Assuming that the trades were synchronized,
the fact remains that the trades were executed over a period of three months
and there is no allegation that it affected the price of the scrip.  It is an admitted position that
synchronized trades per se are not illegal. 
It is only when synchronized trades are executed with a view to manipulate
the price of the scrip that the provisions of the FUTP Regulations will get
 All these trades were
executed on behalf of the clients and no action is said to have been taken by
the Board against these clients. In view of the foregoing discussions, we are
of the view that in the facts and circumstances of this case, the charge of
violating the provisions of regulations 4(b) and (d) of the FUTP Regulations is
not made out.  [emphasis added]
not germane to the substantive issue at hand, the SAT also made observations
regarding the inordinate delays in SEBI’s investigation in the matter. SEBI’s
order, which was passed in March 2012, related to trades that occurred way back
in 2000. Relevant extracts follow:
delay in conducting inquiries and in punishing the delinquent not only permits
market manipulator to operate in the market, it also has demoralizing effect on
the market players who are ultimately ‘not found guilty’ but damocles’ sword of
inquiry keeps hanging on them for years together from the date of starting
investigation by the Board to the date of completion of inquiry proceedings.  …  A
market player has a right that if proceedings are initiated against him by the
Board for violation of any rules  and
regulations, the proceedings against him, are also concluded expeditiously and
he is not made to undergo mental agony when these are unnecessarily prolonged
without any fault on his part in delaying 
the proceedings. We hope that the Board will take necessary steps to
ensure that inquiry proceedings against market manipulators are completed
expeditiously and guilty persons are punished in a time bound manner so that
the objective of having a clean and investor friendly market can be achieved. 

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


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