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CSFB Mauritius Fined By Indian Regulator For Illegal Short Sale

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

14 December 2005


The Securities and Exchange Board of India (SEBI) has fined Credit Suisse First Boston (Mauritius) Limited for illegally short selling shares in the Indian market.

In an order dated December 5, 2005, SEBI fined CSFB R1 million (US$21,700) after finding the firm guilty of selling more shares of Reliance Industries Ltd (RIL) than it owned through its sub-account, Kallar Kahar Investments Limited (KKIL), on December 16, 2002, thereby undertaking a short sale, which is illegal under Indian trading rules.

The regulator had already suspended Credit Suisse First Boston (India) Securities Pvt Ltd as a stockbroker for a period of two years with effect from April 18, 2001, for violating SEBI rules.

CSFB has denied any deliberate wrongdoing and claims that the short sale was the result of a human error by one of its traders. The firm pointed out that the Bombay Stock Exchange subsequently auctioned the excess shares, resulting in a loss to the company. CSFB also argues that the quantity of the short sale was relatively small and would not have affected price or volumes in the highly liquid market for RIL shares.

These arguments were partially accepted by the adjudicating officer, whose six page report noted that:

"I do not find any material on record indicating the repetition of default on the part of the noticee (CSFB). I also do not find from the records that the noticee has expropriated any amount of disproportionate gain or any unfair advantage made as a result of the default."

The order comes at a time when CSFB is reportedly considering a re-entry into the Indian market following the end of its two-year suspension.


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