The Khemanis will not be allowed to buy, sell or deal in the securities market directly or indirectly, Sebi in its order issued under section 11 and 11 B of Sebi Act. Sebi had initiated investigations against Ketan Parekh and some entities associated with him and also some brokers of CSE including Mr Khemani for alleged market manipulation. During the course of investigation, Sebi prima facie found that several lapses and violations have been found committed by Mr Khemani, which resulted in market manipulation.
Sebi chairman GN Bajpai, in his order dated January 21, 2003, said, Indulging in off-the-floor transactions at huge volumes (Rs 12,640 crore) and not reporting them to the exchange amounts to creating a parallel market outside the recognised stock exchange mechanism. Such trades are against transparency requirements, do not contribute to the price discovery and deprive many investors the benefit of the best possible price. It also militates against the basic concept of the stock exchanges which is meant to bring together a large number of buyers and sellers in the open manner.
The Sebi order further said, These trades also avoid prudent regulatory controls and market safety measures like payment of margins, intra-day turnover, exposure limits etc. It is possible that by avoiding margins and exposure limits, broker has involved in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness.
It also said, Further, by not reporting these off-the-floor trades, the broker prima-facie avoided compliance with the prudential exposure limits and margin requirements of CSE prevailing during the relevant period. It also prima facie amounts to violation fo Sebis circular which mandates that all deals should be executed on the screens of the exchanges.