Capital markets regulator Sebi on Wednesday imposed a penalty of Rs 6 lakh each on Adroit Financial Services and Silver Stream Equities for flouting norms with respect to using National Stock Exchange’s co-location facility.
The entities connected frequently to the secondary server which was in violation of the NSE co-location guidelines, thereby also failing to exercise due skill care and diligence in conducting their trading operations, it added.
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The stock brokers continuously logged in to secondary server in currency derivatives, cash market and Futures and Options segments during 2012-2014 without any sufficient reason, according to Sebi orders.
As per NSE’s co-location guidelines, secondary source for TBT (Tick-By-Tick) data is to be used in the event of non-availability of TBT primary source and that trading members should not routinely connect to the secondary server.
Further, it is seen from the available records that NSE advised the two stock brokers not to connect to secondary server but they continued to connect to the secondary server, Sebi noted.
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By circumventing the primary source on a regular basis, the entities engaged in conduct which undermined the trading system set up to provide fair and equitable access to all brokers who connected to it, Sebi said in similarly-worded orders.
Through such acts, Adroit Financial Services and Silver Stream Equities violated the provisions of the NSE bye-law and code of conduct specified under stock brokers’ rule as well PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
The Securities and Exchange Board of India (Sebi) had received multiple complaints pertaining to allegations of malpractices with respect to the co-location facility being provided by NSE.
In the wake of allegations of preferential access to TBT data feed given by NSE to certain trading members, the matter was taken up for investigation by Sebi.
Adroit Financial Services and Silver Stream Equities and were among the trading members identified for comprehensive investigation (including forensic audit) for primary and secondary server connects.
Meanwhile, in five separate orders, Sebi has levied a fine of Rs 5 lakh each on Sanjana Bohra, Sudhir Agarwal HUF, Mahabir Prasad Garg HUF, Harsh Vardhan Maheshwari and Rajendra Prasad Signodia for indulging in non-genuine trades in illiquid stock options at BSE.
The regulator observed large scale reversal of trades in stock options segment of BSE and such large scale reversal of trades in stock options lead to creation of artificial volume at BSE.
In view of the same, the regulator conducted an investigation into the trading activities of certain entities in illiquid stock options at BSE for the period April, 2014 to September, 2015.
Pursuant to investigation, it was observed that over 2.91 lakh trades comprising substantial 81.38 per cent of all the trades executed in stock options segment of BSE during the investigation period were non-genuine trades.
The non-genuine trades resulted in creation of artificial volume to the tune of 826.21 crore units or 54.68 per cent of the total market volume in stock options segment of BSE.
It was observed that these five entities were among the various entities which indulged in execution of reversal trades in stock options segment of BSE. By indulging in such trades, they violated the provisions of PFUTP rules.
Through a separate order on Tuesday, Sebi slapped a fine of Rs 5 lakh on Mohammad Rashid for indulging in fraudulent trading in the matter of Religare Enterprises Ltd.
The order comes after Sebi conducted an investigation into the alleged irregularities in the trading in the shares of Religare Enterprises for the period April 2011 to May 2011 and into the possible violation of the regulatory norms.