Mumbai, Oct. 3: Circular trades in penny stocks by rogue clients have turned up the heat on Internet stock brokerages.
Last week, capital market watchdog Sebi issued a flurry of orders after investigating the dramatic rise in some penny stocks and forbade the errant clients of Indiabulls and India Infoline Securities from trading in these stocks.
“India Infoline or its group companies have never traded or dealt in the shares of IFSL Ltd on a proprietary basis,” India Infoline Securities (IISPL) has said.
“The Sebi order bans two of our customers, namely, Jay Shah and Jayesh Waghela, from trading in IFSL shares till further orders. Accordingly, IISPL has complied with the order by prohibiting any further dealings in the scrip on behalf of the above two clients,” the Internet stock brokerage says.
IndiaBulls, one of the premier stock brokerages which unwittingly got involved in the penny stock rigging because of rogue clients, has also received a stricture from the market regulator.
Is there no way to check rogue deals by clients'
Gagan Banga of IndiaBulls says while all surveillance systems are in place, it is difficult to catch them real time. Further, India Bulls has 1.5 lakh clients operating from 130 locations spread across the country and 10,000 clients who trade independently through the Internet. “India Bulls owned nothing”, says Banga. “The shares of IFSL were held on behalf of 840 clients who were trading in the stock.”
“We cannot stop our customers from buying or selling stock. We have no option but to allow them to trade,” says Banga.
IndiaBulls has a daily traded turnover of Rs 2000 crore. Futures and options account for 7 per cent of the market share. “We will always be a major broker in every stock,” he says. It was caught in the regulatory crossfire because of client misdeeds.
“These are the downsides for being large,” says Banga.
Sebi is clearly not impressed with the argument.
In its order it says, “The stock brokers, viz Indiabulls Securities Ltd, Insight Share Brokers, Fortis Securities, Joindre Capital Services, India Infoline Securities, Ruchiraj Share Stock Broker and Peninsular Capital Market are hereby directed not to buy, sell or deal in securities of IFSL on behalf of the promoters, directors and clients mentioned.”
India Bulls is a first-generation stock brokerage. It advertised on television channels unlike other brokerages and came up quickly making a big impact on the markets.
Promoted by a group of young IIM graduates, IndiaBulls has since branched out into financing small and medium enterprises and personal loans of up to Rs 40,000 to individuals. Another subsidiary recently bagged two prime real estate textile mill properties in the heart of the city ' Jupiter Mills and Elphinstone Mills. Thus, it is trying to add the brick and mortar to its existing businesses.
Despite brokerage travails, stocks were still zooming in the fast lane today with the BSE sensex closing at a record 8,697.65.