The market regulator SEBI is probing the recent increase in the share prices of Ruchi Soya and Alok Industries. After Ruchi Soya got relisted on January 27, 2020, its share prices have climbed to 7647%. This unexpected rally has helped the company to surpass the market value of Biocon, JSW Steel, Aurobindo Pharma, Marico and Lupin.
Similarly, the share price of Alok Industries which was relisted on February 27, 2020, after the restructuring of Equity has scaled to 1,256% since April, 2020. Alok Industries was acquired by Reliance Industries and JM Financial Asset Reconstruction Company last year through NCLT.
SEBI is investigating to understand if there have been any instances of circular trading of the stocks of these two companies.
Circular Trading is a fraudulent mechanism where sell orders are entered by a broker who knows that corresponding buy orders for the exact same number of shares at the same time and, at the same price will be entered. This type of manipulative trading can be possible with the active connivance of many parties. The basic purpose of circular trading is to increase the value of shares and it is fraudulent because it gives a signal that investors are willing to buy the shares thereby enhancing the price of the shares wherein reality it was not supposed to be so.
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