In Re Ashok Kumar Sharma HUF (SEBI)
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
(ADJUDICATION ORDER NO. : Order/BM/LD/2021 -22/14557)
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UNDER SECTION 15-I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995.
In respect of
Ashok Kumar Sharma HUF
(PAN: AAHHA4898K)
In the matter of dealings in Illiquid Stock Options at the BSE
BACKGROUND OF THE CASE :
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI ) conducted an investigation into the trading activity in illiquid stock options on BSE Limited (hereinafter referred to as “BSE”) for the period April 01, 2014 to September 30, 2015 (hereinafter referred to as the “Investigation Period”) after observing large scale reversal of trades in the stock options segment of the BSE.
2. Pursuant to investigation it was observed that a total of 2,91,744 trades comprising 81.40 % of all the trades executed in the stock options on BSE segment during the investigation period were non genuine trades. It was observed that Ashok Kumar Sharma HUF (hereinafter referred to as the “Noticee”) was one such entity who indulged in execution of reversal trades in stock options segment of BSE during the Investigation period. Such trades were observed to be non-genuine in nature and created false or misleading appearance of trading in terms of artificial volumes in stock options and therefore were alleged to be manipulative, deceptive in nature. In view of the same, SEBI initiated adjudication proceedings against the Noticee for alleged violation of the provisions of Regulation 3(a),(b),(c),(d) and Regulation 4(1) & 4(2)(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations, 2003”).
APPOINTMENT OF ADJUDICATING OFFICER :
3. The undersigned has been appointed as the adjudicating officer vide order dated September 23, 2021, under Section 19 read with sub-section (1) of Section 15- I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the “SEBI Act, 1992”) and Rule 3 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as the “Adjudication Rules, 1995”) to inquire into and adjudge the alleged violation committed by the Noticee, under Section 1 5HA of the SEBI Act, 1992.
SHOW CAUSE NOTICE, REPLYAND HEARING :
4. A show cause notice ref. EAD-3/BM/LD /ISO-II/29263/2021 dated October 20, 2021 (hereinafter referred to as “SCN”) was served upon the Noticee under Rule 4(1) of the SEBI Adjudication Rules to show cause as to why an inquiry should not be held and penalty not be imposed against the Noticee under Section 1 5HA of the SEBI Act.
The SCN issued to the Noticee, inter alia , mentioned / alleged the following :
(i) The Noticee was one of the entities which had indulged in reversal trades which allegedly created false and misleading appearance of trading, generating artificial volumes in stock options segment of the BSE during the Investigation Period.
(ii) The Noticee had engaged in 2 instances in 1 unique contract which led to generation of artificial volume in the aforesaid unique contracts.
(iii) In the 1 unique contract, the trades entered by the Noticee were reversed with the same counterparty at a substantial price difference without any basis for significant change in the contract price, which indicates that these trades were artificial and non-genuine in nature.
(iv) For the purpose of illustration of non-genuine trades and creation of artificial volume by the Noticee, details of trading done by the Noticee in the contract viz. “RCOM
