Applicability

Any person who sells, deals, pledges stolen/counterfeit/fraudulent issued securities.

Compliance Requirements under the Regulation

1. Prohibition of Fraudulent & Manipulative Securities Dealings (Regulation 3)
   No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

2. Prohibition of Manipulative & Fraudulent & Unfair Trade Practices (Regulation 4 (1))
   Without prejudice to the provisions of regulation 3, no person shall indulge in a manipulative, fraudulent or an unfair trade practice in securities markets.

Explanation-
(i) any act of diversion, misutilisation or siphoning off of assets or earnings of a company whose securities are listed or any concealment of such act or any device, scheme or artifice to manipulate the books of accounts or financial statement of such a company that would directly or indirectly manipulate the price of securities of that company, or

(ii) transactions through mule accounts for indulging in manipulative, fraudulent and unfair trade practice shall be and shall always be deemed to have been included in sub-regulation (1).

3. Dealings considered as maipulative,fraudlent, UTP (Regulation 4 (2))

Dealing in securities shall further be deemed to be a manipulative fraudulent or an unfair trade practice if it involves any of following:

(a) manipulating security prices, including reference or benchmark prices;

(b) knowingly publishing or reporting false or misleading securities-related information;

(c) executing trades without intent to perform or transfer ownership;

(d) disseminating false or misleading information or advice to influence investors;

(e) unauthorized client transactions or misuse of client funds or securities;

(f) circular trades creating false trading appearance or artificial price movement;

(g) fraudulently inducing trades to increase brokerage or commission;

(h) falsifying or predating records, including contract notes and client statements;

(i) placing orders while in possession of unpublished price-sensitive information;

(j) planting false or misleading news to induce trading;

(k) illegal fund mobilization through unauthorized collective investment schemes.

4. Trading in Stolen or Fraudulent Securities and Exceptions (Regulation 4 (2) (h))
   Dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair
   trade practice if it involves selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities whether in physical or dematerialized form.

Provided that if:-

(i) the person selling, dealing in or pledging stolen, counterfeit or fraudulently issued securities was a holder in due course; or

(ii) the stolen, counterfeit or fraudulently issued securities were previously traded on the market through a bonafide transaction,

(iii) such selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities shall not be considered as a manipulative, fraudulent, or unfair trade practice.

5. Mis-selling of Securities/services relating to securities market (Regulation 4 (2) (s))
   Dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair trade practice if it involves mis-selling of securities or services relating to securities market

“Mis-selling” means sale of securities or services relating to securities market by any person, directly or indirectly, by─

(i) knowingly making a false or misleading statement, or

(ii) knowingly concealing or omitting material facts, or

(iii)knowingly concealing the associated risk, or

(iv)not taking reasonable care to ensure suitability of the securities or service to the buyer;

Penalty & Punishment

Penalty U/s 15HA of SEBI Act 1992 – If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher. Also Board may take action as specified in Regulation 11 of SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to Securities Market) Reg. 2003