Sebi bars Transparent Shares from taking up new assignments for a week

The Securities and Exchange Board of India (Sebi) has restrained stock broker Transparent Shares and Securities from taking up any new assignment for one week for allegedly indulging in "unfair and unaccepted" market practice while applying for Edserv Softsystems' IPO on behalf of clients.

The market regulator, in its order on Thursday, said it has "prohibited Transparent Shares and Securities Pvt Ltd...to take up any new assignment for a period of one week from the date of this order." The matter relates to Edserv Softsystems Ltd's (ESL) initial public offering (IPO), which opened for subscription between February 5 and 9, 2009.

The stock broker had applied for 1.6 lakh shares in the IPO of ESL in its own name on behalf of its four clients. The clients were keen on applying, however, the decision to apply in the IPO was taken by them very late and because of paucity of time, they were not in a position to apply themselves and requested the broker to make application of shares of ESL on their behalf, the market regulator said.

According to Sebi, clients of Transparent Shares and Securities gained by selling the shares of the company and the stock broker merely earned its brokerage.

Sebi said that the stock broker did not intend to defraud in the IPO process but the regulator raised concerns in the manner of making application for the public issue as the merchant banker would not be able to know the actual beneficiaries of the allotment.

Sebi said "such practice may facilitate multiple applications as the broker may apply on behalf of clients by hiding their identity and the clients may also apply separately. It may also entail avoidance of KYC (know your customer) process and enable banned entities to apply or use the illicit money for making investments in the IPOs."

"While applying in the IPO for its clients the notice (Transparent Shares and Securities) indulged in non-genuine, unfair and unaccepted market practice that is detrimental to investors' interest...Further, the noticee showed scant regard to statutory code of conduct applicable to it," it added.