Capital market watchdog restrains 2 dealers in BILT front running case

The Securities and Exchange Board of India (SEBI) has restrained two stock dealers from dealing in securities and rapped 34 other entities in a ‘front running’ case involving the scrip of Ballarpur Industries Limited (BILT). “Raajeev Kasat and Rajeev Shroff are hereby directed not to buy, sell or deal in any securities, directly or indirectly till further directions,” SEBI wholetime member G Anantharaman said in his interim order. A Sebi analysis of the trading pattern in the shares of Ballarpur Industries during the period November 01, 2006 to June 13, 2007, brought out that a set of clients — all of whom are registered with the broker Emkay Shares and Stock Brokers — as also a director of another broking firm, Prayas Securities Private Limited were found to be dealing in the shares of BILT around the time of large sell orders by a foreign institutional investor (FII). The FII was observed to be selling its holdings in BILT, through UTI Securities Limited on different dates within this period. On each of these dates, a few from among these identified clients sold prior to the FII sale and bought an identical quantity after the sell order was placed on behalf of the FII. “This trading strategy adopted by these clients appears to be in the nature of ‘customised front running’,” Sebi said. According to Sebi, prima facie there appears to be a clear pattern in which Raajeev Kasat, dealer of UTI Securities Limited is seen to be passing information to Manish Innani at Prayas Securities Private Limited and Rajeev Shroff at Emkay Shares and Stock Brokers Private Limited Rajeev Shroff in turn appeared to have passed on the information to a group of apparently set up clients, who indulged in ‘customised front running’. The pattern of order placement by the identified clients in order to benefit from the spread in prices at the time of short selling and short covering, indicates that the timing and quantity of orders of the FII was well within the knowledge of the identified clients who were observed to be ‘customised front running’, Sebi said. SEBI also hauled up UTI Securities and Emkay Shares and Stock Brokers for their failure to put in place adequate internal controls to prevent market abuse and the misuse of the trading system. SEBI also asked UTI Securities and Emkay Shares to conduct an internal enquiry into the matter and initiate appropriate action against their employees or agents involved in the case and submit a report within 30 days. The regulator passed a cease and desist order against 34 entities, directing them to deposit the “illegal profits” made by them with National Stock Exchange within a fortnight. Among those who have been asked to deposit the amount include Manish Innani (Rs 12.2900000), Sanjay M Dujodwala (Rs 9.9700000), S Madasamy (Rs 8.5800000) and Pravin G Shroff (Rs 6.3800000). Meanwhile, SEBI also advised all market intermediaries to strengthen their existing systems and internal controls to avoid occurrence of any such violations by their employees and agents. What’s front running? Front running is an activity under which a trader takes unfair advantage in advance of a large buy or sell order in a scrip aimed at moving the price of the equity in a predictable fashion. Dealers in many mutual funds and broking firms buy a small quantity of a scrip for themselves before they execute a bigger order in the same scrip and later sell them when the price rises.