Sebi today imposed a penalty of Rs 5 lakh on Crosseas Capital Services for fraudulent trading activities, while also asking the brokerage firm to review its systems and take necessary steps to avoid illegal trades.
The case is related to the initial public offer (IPO) of Bharatiya Global Infomedia and the trading in the company's scrip on the bourses on the listing day on July 28, 2011.
Securities and Exchange Board of India (Sebi) found that Crosseas had indulged in self trades in 9.20 lakh shares of Bharatiya Global Infomedia, on the BSE and NSE.
It had also executed 16 self trades on BSE and 1,375 self trades on NSE from the same terminal for a total quantity of 81,436 shares.
Noting that the self trades had created artificial volumes in the market, Sebi in an order directed Crosseas to "review its own systems and take appropriate steps that self trades and other categories of trades which are prohibited under the Sebi regulations/ guidelines are avoided".
"The noticee may get its systems verified by the stock exchanges to their satisfaction," it added.
Besides, the regulator has also imposed "a penalty of Rs 5 lakh" on the broker for indulging in fraudulent acts.
Crosseas had submitted to Sebi that it was unable to prevent self trades while trading through its algorithmic trading (algo trading) software system.
However, Sebi noted that "any algo system, used by a trader/stock broker, which is unable to eliminate patently fictitious self trades, is violative of securities laws and the user of the same should be held responsible for the violations".
"The noticee's inability to prevent self trades is obvious while his insistence that such patently fictitious and reprehensible trades should be ignored is not only unacceptable, but irresponsible as well," Sebi said.
The market regulator also noted that showing any leniency in the matter would convey a wrong message that "the users of software programmes are not responsible for the performance of the programme".
"In today's age of computerised trading such wrong message would have wide implications," it added.
Algo trading refers to the automated execution of trades on the stock markets through pre-programmed software platforms installed on servers.
