The Securities Appellate Tribunal recently dismissed an appeal regarding the trading activities of Angel Broking Private Limited in the scrip of Sterling Green Wood Limited. Angel Broking had acted as the broker and the counter party broker in certain circumstances. The Tribunal held that the trades, while manipulating the stock price and giving a false appearance of trading, were undertaken without the intent to effect any change in beneficial ownership.

It was alleged that Angel Broking undertook self-trades on two occasions in 2009. The first instance involved 323 shares and was priced lower than the prevalent average traded price. The second instance, effected on the following day, involved 9350 shares and was priced higher than the prevalent average traded price. While in one, a small portion of the earlier sell order matched a subsequent buy order, the second involved a sell order matching a small portion of a large buy order placed subsequently. In both situations, the buy and sell orders were placed over 12 minutes apart and were about 20 paise away from the average traded price (the stock price at the time was around Rs. 40). Angel Broking argued that the trades were executed independent of each other by separate dealers and were mere jobbing transactions.

The question of how strong an effect these trades had on the market remains as the number of shares traded and the difference between price of trades and average traded price was relatively low. However, while observing that it is not logical to place large buy orders at a higher price when a sell order at a lower price is pending, the Tribunal found no merit in the appeal and upheld the order imposing a penalty of Rs. 30 lakhs. Brokers might need to improve mechanisms to prevent self-trades as they may result in hefty penalties, however small the quantum of trade and however little its effect on the stock.

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Date:September 28, 2015