SEBI Order in the Fraudulent Practices case of creation of artificial volume using circular / reversal trades

The Securities and Exchange Board of India (SEBI) conducted an investigation into the dealings in the scrip of Sun Infoways Limited under the ambit of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995.

The trading details of the persons who had traded in the scrip were collected and analyzed along with the data of volumes contributed. During the period of investigation, there was consistent fall in the price of the scrip of SIL accompanied by low delivery. The price of the scrip of SIL had fallen from Rs 342 as on February 05, 2001 to a low of Rs 60.75 as on April 30, 2001 before finally closing at Rs 73.75 on May 02, 2001. Prior to this period of investigation, SEBI had earlier also conducted an investigation in the scrip
of SIL, for the period from February, 2000 to August, 2000, wherein the price of the scrip had increased from Rs 10 in February, 2000 to Rs 696 in August, 2000 and appropriate actions were initiated against the persons/ entities found in default.

The investigation for the period of February 05, 2001 to May 02, 2001 prima facie revealed that circular/ reversal trades were executed by certain brokers forming part of few groups in the scrip of SIL. Such circular/ reversal trades created artificial volume to
the tune of 5,43,500 shares (gross) in 37 days out of 50 trading days. It was found that the circular trading in the scrip had generated 26% to 97% of the daily volumes on the days when such trading was observed. The circular/ reversal trades had resulted into an
increase in the price of the scrip in the beginning of the investigation period till March 02, 2001 and the price of the scrip had stayed in the range of Rs 342 to Rs 296 (opening price). Thereafter, the trading of these entities in the scrip reduced drastically, the volume of trades in the scrip became negligible and the price of the scrip also started declining. The ‘last traded price’ (LTP) analysis for the entire period shows that the price of the scrip varied in the range from -14% to 11.54%.


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