SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

Definition: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 aim to prevent fraudulent, unfair, and manipulative trade practices in the securities market.
Details: These regulations were made in exercise of the powers conferred by Section 30 of the SEBI Act, 1992, and define fraud as any act, expression, omission, or concealment committed to induce another person to deal in securities, whether or not there is any wrongful gain or avoidance of loss.

Key Concepts

Prohibited Dealings: The regulations prohibit certain dealings in securities, including:
- Buying, selling, or dealing in securities in a fraudulent manner.
- Using or employing manipulative or deceptive devices in connection with the issue, purchase, or sale of securities.
- Employing any device, scheme, or artifice to defraud in connection with dealing in or issue of securities.
Manipulative, Fraudulent, and Unfair Trade Practices: Dealing in securities shall be deemed to be a manipulative, fraudulent, or unfair trade practice if it involves:
- Creating a false or misleading appearance of trading in the securities market.
- Dealing in securities not intended to effect transfer of beneficial ownership but intended to inflate, depress, or cause fluctuations in the price of such security for wrongful gain or avoidance of loss.
- Inducing any person to subscribe to an issue of securities for fraudulently securing the minimum subscription to such issue of securities.

Investigation and Enforcement

Investigation: The regulations relate to the investigation of transactions that may involve fraudulent and unfair trade practices.
Enforcement: SEBI may take various actions, including:
- Suspending the trading of a security found to be involved in fraudulent and unfair trade practice.
- Restraining persons from accessing the securities market and prohibiting any person associated with the securities market from buying, selling, or dealing in securities.
- Issuing a warning or censure, suspending or canceling the registration of an intermediary.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003

Definition: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 aim to prevent and prohibit fraudulent and unfair trade practices in the securities market.
Details: The regulations outline various provisions to prevent market manipulation, front running, and other unfair trade practices.

Key Concepts

Market Manipulation: SEBI investigated a case where the scrip price of FFSL rose exorbitantly from May 15, 2012, to February 8, 2013, followed by a huge volume of trades, and most shares issued to preferential allottees were off-loaded in the market.
Front Running: The Supreme Court considered cases involving front running by non-intermediaries, including tippee trading and trading ahead, and determined that non-intermediary front running may be prohibited under regulations 3 and 4(1) if it constitutes a fraudulent or unfair trade practice.
Regulations 3(a), (b), (c), and (d) and 4(1) of FUTP 2003: These regulations outline the provisions for prohibiting fraudulent and unfair trade practices, including front running, and require proof of a breach of duty to keep non-public information confidential and knowledge of the tippee.

Case Findings

FFSL Case: SEBI found that FFSL and its connected entities had violated the provisions of Section 12A(a), (b), and (c) of the SEBI Act, 1992, and Regulations 3(a), (b), (c), (d), and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
Front Running Cases: The Supreme Court considered multiple cases involving front running by non-intermediaries and determined that non-intermediary front running may be prohibited under regulations 3 and 4(1) if it constitutes a fraudulent or unfair trade practice.

Important Terms

Front Running: Trading ahead of a large order or block trade to take advantage of the expected price movement.
Tippee Trading: Trading by a third party who has received non-public information about an impending block trade.
Self-Front Running: Engaging in offsetting futures or options transactions to hedge against price fluctuations caused by a block transaction.
Trading Ahead: An intermediary trading ahead of a customer's block order for their own profit.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations

Definition: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, aim to prevent and penalize fraudulent and unfair trade practices in the securities market.
Details: These regulations outline the rules and guidelines for trading in the securities market, including the prohibition of practices such as synchronized trading, circular trading, and reversal trading.

Key Concepts

Synchronized Trading: Trading in which multiple entities execute trades in a coordinated manner, often to manipulate the market price of a security.
Circular Trading: Trading in which entities buy and sell securities among themselves, often to create the illusion of market activity and manipulate prices.
Reversal Trading: Trading in which an entity buys and then sells a security, or sells and then buys a security, often to take advantage of price movements.

Case Studies

Case 8.3: Ms Sunita Gupta vs. SEBI: The appellant was found to have violated the SEBI Act and PFUTP Regulations by engaging in synchronized and circular trading, and was imposed a penalty of Rs. 25 lakhs.
Case 8.4: SEBI vs. Hemant Ghai, Shyam Mohini Ghai, Jaya Hemant Ghai: The respondents were found to have engaged in unfair trade practices, including using advance information to trade in securities, and were restrained from buying, selling, or dealing in securities.

Important Terms

SEBI Act: The Securities and Exchange Board of India Act, 1992, which establishes the regulatory framework for the securities market in India.
PFUTP Regulations: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, which outline the rules and guidelines for trading in the securities market.
Adjudicating Officer: An officer appointed by SEBI to investigate and adjudicate cases of alleged violations of the SEBI Act and regulations.
Securities Appellate Tribunal: A tribunal established to hear appeals against orders passed by SEBI.

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities)

Definition: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities) regulations aim to prevent fraudulent and unfair trade practices in the securities market.
Details: These regulations prohibit any person from engaging in fraudulent or unfair trade practices, either jointly or severally, and provide SEBI with the power to take action against those who violate these regulations.

Key Concepts

Fraudulent Trade Practices: Include wilful misrepresentation of truth or concealment of material fact, with the intention of causing another person to act to their detriment.
Unfair Trade Practices: Encompass a broad range of activities, including providing unverifiable information to clients, and dealing in securities in a fraudulent manner.
SEBI Powers: SEBI has the authority to cancel or suspend the registration of an intermediary found to be engaging in fraudulent or unfair trade practices.

Review Questions

Question 1: True, as fraud includes wilful misrepresentation of truth or concealment of material fact.
Question 2: (d) All of the above, as the regulations prohibit a person from buying, selling, or dealing in securities in a fraudulent manner.
Question 3: (a) True, as fraud includes an intermediary providing unverifiable information to clients.
Question 4: (c) Both a & b, as SEBI can cancel or suspend the registration of an intermediary found to be engaging in fraudulent or unfair trade practices.