SEBI Imposed Rs. 7 Lakh Penalty on RIL Subsidiary Reliance Strategic Investments for Indulging in Box Trade Activities

SEBI Imposed Rs. 7 Lakh Penalty on RIL Subsidiary Reliance Strategic Investments for Indulging in Box Trade Activities

The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs. 7 lakh on Reliance Strategic Investments Ltd, a subsidiary of Reliance Industries Ltd (RIL), for indulging in box trade activities in long-dated Nifty options expiring on 28 December 2017.

The Adjudicating Officer (AO) Soma Majumder in her order stated, “The observations relating to the conduct of Reliance Strategic Investments and other attending facts and circumstances of the case, when applied to the test of preponderance of probability, lead me to the undeniable conclusion that Reliance Strategic Investments had engaged in manipulation of the price and premium of 11400 PE at least on two trading days, i.e. 8 August 08 and 10 August 2017. In light of the foregoing, I find that the allegation in the show cause notice (SCN) that Reliance Strategic Investments has violated Section 12A(c) of SEBI Act read with Regulations 3(d), 4(1) and 4(2)(e) of prohibition of fraudulent and unfair trade practices (PFUTP) Regulations stands established.”

SEBI had conducted investigation in the trades done in the long-dated Nifty options between Reliance Strategic Investments and Morgan Stanley (France) SA (MSF) revealed these two entities traded in long-dated Nifty put options expiring on 28 December 2017, having a strike price of 11400 (PE) at a price significantly away from its intrinsic value.

The AO had observed that Reliance Strategic Investments had knowingly entered into trades in 11400 PE at a significant discount at least on two days.

The SEBI was of the view that Reliance Strategic Investments had failed to explain the rationale for such a significant discount in 11400 PE or calculations for arriving at the premium for the relevant trades.

Moreover, Reliance Strategic Investments had approached only one trading member, i.e. Morgan Stanley India Company Private Ltd (MSICPL), for getting quotes for 11400 PE and who in turn, had approached only one client i.e. MSF to obtain the quotes for Reliance Strategic Investments. Further, I note from records that the aforementioned high volume trades were executed on the exchange platform in a synchronised manner, noted the board.

“Considering the absence of any internal policies to demonstrate Reliance Strategic Investments’ trading decisions to execute the relevant trades at such discounted prices and lack of any evidence to establish that indeed other quotes had been obtained/considered by Reliance Strategic Investments and that these were the best prices available, it will not be wrong to conclude that the relevant trades by Reliance Strategic Investments at a significant discount from the fair value, through a mutual arrangement with its counterparty, at least on two days, without any proper justification, were manipulative in nature,” the AO observed.

Accordingly, SEBI directed the subsidiary of RIL to pay within 45 days, a penalty of Rs. 7 lakh.