The presentation talks about synchronized trading under SEBI (PFUTP) Regulations, 2003.

1. SYNCHRONIZED TRADING UNDER
SEBI (PROHIBITION OF
FRAUDULENT AND UNFAIR TRADE
PRACTICES RELATING TO
SECURITIES MARKET),
REGULATIONS, 2003
By:-
Abhinav Mishra,
NLU, Visakhapatnam

2. SEBI(PFUTP) REGULATIONS, 2003
 These regulations prohibit any kind of fraudulent or
unfair trade practice. Some of examples are:-
 Creating a false appearance of trading of securities.
 Handling securities with a purpose of inflating or
causing fluctuations in the market.
 Manipulating the price of securities.
 Use of false information to make a person handle
securities.
 Publish fake accounts with inflated figures in their
financial report.

3. SYNCHRONIZED TRADING- DEFINITION
 According to Oxford Dictionary, “Synchronize”
means “cause to occur at the same time; be
simultaneous”.
 Synchronized trading occurs when two or more
people execute trades amongst themselves with a
prior understanding with respect to
 time,
 price and;
 quantity of the transaction.

4. IS IT LEGAL?
 Synchronized is not illegal per se. Just because
parties entered into a transaction with a pre-
meditated mind with respect to price and quantity of
shares, it doesn’t become illegal.
 However, it becomes illegal if:-
 It results in circular trading.
 It does not involve change in beneficial ownership.
 It is executed to create false volumes of trade.
 It is executed with a view to inflate or deflate the
price of securities.
 It is executed with an intention to manipulate the
market or defeat the market mechanism.

5. FACTORS TO BE CONSIDERED
 Following factors have to be looked into while
deciding upon the legality of such transactions:-
 Nature of transaction.
 Frequency of transactions.
 Value of such transactions.
 Particulars of buy and sell orders.
 Conditions prevailing in the market.
 Change in beneficial ownership
 Whether it results in circular trading or not.
 Whether the parties are connected or not.
The list is not exhaustive and one factor may not be
decisive.

6. SEBI V. RAKHI TRADING PVT. LTD. AND
ORS.(2018)
 In this case, huge quantities of shares of were
traded between Rakhi Trading Pvt. Ltd. And Kasam
Holdings. The reversals took place within a matter
of seconds.
 One party was always making profits and the other
party was always making losses.
 The price at which buying and selling took place did
not reflect the actual value of the underlying
securities.
 However, the transactions did not affect the price of
the securities.

8.  The SEBI decided against the traders and brokers and
held that they indulged in Synchronized Trading. It held
that reversal of trades repeatedly in the exact second is
not possible, such co-incidence is highly unlikely to have
taken place. The trades were pre-arranged or
synchronized between the buyers and sellers with the
intention of creating a false or misleading appearance in
the market which is violative of the Regulations.
 An appeal was filed in SAT. The appellate tribunal
overruled the SEBI’s ruling and held that Synchronized
Trading is not prima facie illegal unless it manipulates
the securities market. It was held that though parties
entered into the pre-arranged or synchronized trade and
reversed the same, however, it did not have any impact
on the market leading to manipulation.

9. DECISION OF THE SUPREME COURT
 The court held that “in a game where aim is to always
make profits, one party was consistently making losses
leading to an unfair trade practice”.
 In the Court’s view, this factor alone is sufficient to prove
that the alleged transactions weren’t genuine dealings.
 Securities market is not a place of for orchestrated
trades. Trading in securities has to remain fair and
transparent.
 It observed the need for a more comprehensive legal
framework governing the securities market to keep up
with the changing times to ensure free and fair trading.

10. ARE BROKERS LIABLE?
 Court held that brokers cannot be made liable
merely by the fact that they were acting as brokers
and carried out the trade on the directions of its
clients.
 In screen based trading system, names of the
parties remains anonymous and it is not possible to
ascertain who the parties are.
 There was no material on record to show brokers
had specific knowledge of the fictitious transactions
being carried out.

11. KISHORE R. AJMERA V. SEBI
 Illiquid scrips were traded in huge volumes.
 Transactions made within 0 to 60 seconds.
 Broker himself initiated trade the sale of a particular
quantity and got it back at the end of the day.
 Trading went on without settllement of accounts.
 Though identity of third party remains anonymous
in online trading, final conclusion cannot be rested
upon it.

12. EFFECTS OF THE RULING IN RAKHI TRADING’S
CASE
It empowered SEBI to impose penalty
on slightest manipulation in the
securities market.
It is not necessary that synchronized
transaction must affect manipulate the
market or the price of securities. If it
affects the integrity and fairness of the
market, a party can be held liable.

13. CONCLUSION
 With changing times, notorious people find
new ways to circumvent laws. SEBI needs
to adapt itself with the changing times.
 A comprehensive legislative framework is
required to tackle synchronized trading.
 Adequate cyber- security measures need to
be put in place for nipping such cases in the
bud.