Circular Trading

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Dharmesh Udeshi

Dharmesh Udeshi (Querist)
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07 December 2007 What is circular trading? pls give an example if possible

What is price rigging???

R.V.RAO

R.V.RAO (Expert)
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07 December 2007 CIRCULAR TRADING REFERS TO A FRADULENT TRADING SCHEME WHERE SELL OR BUY ORDERS ARE ENTERED BY A PERSON WHO KNOWS THAT THE SAME NUMBER OF SHARES AT THE SAME TIME AND FOR THE SAME PRICE HAVE BEEN OR WILL BE ENTERED. THESE TRADES DO NOT REPRESENT A REAL CHANGE IN BENEFICIAL OWNERSHIP OF THE SECURITY.THESE TRADES ARE ENTERED WITH THE INTENTION OF RAISING OR DEPRESSING PRICES OF SECURITIES.
FOR EXAMPLE SOME 5 OR 6 PERSONS BUY AND SELL A HIGH VOLUME OF SAME NO. OF SHARES AMONG THEMSELVES WITH THE UNDERSTANDING OF INCREASING THE VOLUMES IN THE SHARES TRADED IN A SPECIFIC SCRIP.THIS HIGH VOLUME LEADS A SMALL AND GULLIBLE INVESTOR TO BELIEVE THAT THE SCRIP IS ACTIVELY TRADED .
THIS WRONG BELIEF MAY LEAD TO MORE BUY OR MORE SELL ACTION IN THE SCRIP WHICH LEADS TO AN ARTIFICIAL OR UNREAL RISE OR FALL IN THE VOLUME AND ALSO PRICE OF A SCRIP. SO WE NOW KNOW IT IS A CIRCULAR TRADING BETWEEN A FEW INTERESTED PARTIES OR THEIR REPRESENTATIVES TO HIKE UP OR REDUCE VOLUMES OF A SCRIP . IT IS MARKET MANIPULATION.
SIMILARLY PRICE RIGGING IS WHEN PERSONS ACTING IN CONCERT WITH EACH OTHER COLLUDE TO ARTIFICIALLY INCREASE OR DECREASE THE PRICE OF A SCRIP.
SEBI AND STOCK EXCHANGE REGULATIONS SPECIFICALLY PROHIBIT SUCH ACTIONS AND TAKE STRICT ACTIONS AGAINST SUCH PERSONS.
THE SCAMS IN INDIAN STOCK MARKET ARE RESULTS OF SUCH RIGGING AND ARTIFICIAL TRADES.
SOURCE:www.economictimes.com
R.V.RAO