1. The applicant Sanjay Mukim opened a trading account with the respondent - Trading

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1 BEFORE JUSTICE (Retd.) MAHMOOD ALI KHAN SOLE ARBITRATOR A.M. No. F&O/D-059 of 2011 IN THE MATTEROF: Mr. Sanjay Mukim Constituent D-109, IIIrd floor Vivek Vihar Phase-I Delhi SMC Global Securities Ltd. Trading Member Having Registered Office 116-B, Shanti Chambers Pusa Road New Delhi Versus AWARD...Applicant... Respondent 1. The applicant Sanjay Mukim opened a trading account with the respondent - Trading Member MIs. SMC Global Securities Ltd. for carrying out trade under theta strategy of the respondent. He deposited Rs. 3,00,000/- towards margin. He alleged that the trades have been carried out unauthorizedly under the Future & Option recklessly and not in accordance with Theta Strategy, as a result of which he has lost his money. He has claimed Rs. 3,00,000/- which he had deposited and Rs. 1,00,000/- towards mental agony along with 18% per annum. The dispute relating to the claim has been referred by the NSE for adjudication by arbitration. 2. The respondent controverted the allegations of the applicant and asserted that the trades were executed in the account of the applicant as per desire, instructions and consent of the applicant. As a counter claim, it has prayed that a sum of Rs. 5,00,000/- should be awarded against the applicant as claim has been filed with intention of harassing the respondent and taking undue advantage. It is further submitted that Rs. 10,000/- may be awarded as cost of the arbitration. 3. I have heard the representative of the parties. 4. In the statement of case filed with the arbitration application, the applicant has pleaded that Mr. Sachin Ahuja, Manager (Sales) of the respondent lured him into opening a trading account for trades on theta strategy which was option related to Out of Money Call and Out of Money Put but the respondent dealt in Index Future which was in violation of the applicant

2 mandate. According to him he was not provided contract note, trade summary by SMS or the Confirmation calls. The short-fall in the Margin has not been collected, although by dated he was told to replenish margin to the extent of Rs. 2.80,000/-. Trades in Nifty Future were never part of theta strategy. Hence this application. 5. The respondent in reply pleaded that theta trading was the research recommendation on trading in Nifty Options where Nifty could be used as a hedging strategy. All the trades were executed under theta and with due consent of the applicant and no objection had ever been raised by him against any of the trades. The applicant had two decades of market experience and very well knew the risk of hedging product. The claim of the applicant was denied and the counter claim was pleaded as mentioned above. 6. The parties have agreed that the applicant had opened trading account for carrying out theta trading and had deposited Rs. 3,00,000/- as margin. According to the applicant instead of trades under theta strategy the respondent TM executed trades in Nifty Future / Index Future which were not his mandate. The applicant has suffered losses and he wants to recover the amount of Rs. 3,00,000/- deposited by him initially from the respondent. The applicant is not very candid in making his claim. His claim is for Rs. 3,00,000/- which is the total amount deposited by him as margin in his account after the account was opened. In addition he wanted a sum of Rs. 1,00,000/- as compensation for mental agony and harassment. From para 2 of the statement of case, it appears that he was aggrieved that instead of theta trading the Trading Member carried out Index Future trading. From the averments made in para 7, it appears that trades in Nifty Future were carried out which were not part of theta strategy. The question here is as to what is theta strategy. The applicant has attached some brochure issued by the respondent as Annexure A-2. At page 10 of his statement of case the feature of the alleged strategy, its advantages and disadvantages including risk associated have been described as under: Features of Strategy - Under this strategy position are taken through writing of calls and puts Simultaneously - Earns from option value time decay - Well always have open positions in market - Mechanical trading system - Well back-tested strategy - Rules based strategy - Instead of taking a direct buy or sell position in Nifty position is taken by writing call and put option depending on long term trend of the market

3 Advantages - Position is normally created when sufficient time is left in settlement. - Position is shifted with 3 to 6% move in the underlying - SMC Research only provides the strategy and it is the client who will execute at his discretion only. - Exposure is taken in F&O market hence deriving benefits out of leverage. - The strategy earns from option value time decay and fall in market volatility - Liquidity - Unlimited Risk - Volatility of option may rise The feature of theta strategy, as discussed above, is taking position by writing of calls and puts options, taking position when sufficient time is left for settlement and the positions are taken through writing of calls and puts simultaneously. The advantages, as described above are exposure is taken in F&O market hence deriving benefits out of leverage and the strategy earned from the option value time decay and fall in market volatility. But the trades executed under this strategy has certain disadvantages, as mentioned above. Such trades have unlimited risk and volatility of option may rise. According to the applicant, he got this literature from the respondent before the account was opened. The pleadings of the statement of case at the first glance give an impression that the applicant was disputing all the trades but a careful reading shows that he was disputing only Future & Option trades. It is pertinent to mention here that the account was opened by the applicant in August, 20 I 0 for trading in derivative segment of stock market. The first trade in Nifty Future was done on Thereafter various trades in Future were carried out. His contention in the written submissions was that all the trades were carried out by the respondent and the confirmation of those trades were not received by him regularly. It is submitted that the respondent executed arbitrarily trades without his consent and without any margin. Even delayed charges were levied which shows that margin figure provided by the respondent were not correct. According to the applicant there was no difference between mark to market margin and the normal margin. The respondent had made a margin call for Rs. 2,80,000/- on It was not paid. Still the trades were done. He also gave oral instructions to the respondent which were not heeded. The MCA and the Undertaking are fabricated documents. The applicant further submitted that the features of theta

4 strategy mentioned in the brochure of the respondent is mischievous and further that F&O Market signifies derivative market and not future market as claimed by the respondent. 7. Conversely, the respondent in reply to the written arguments of the applicant submitted that KYC executed by the applicant would show that the applicant had specifically opted for trading in derivative market segment of NSE and he had put his signatures in the relevant bracket. He had opted for trading in derivative segment and first trade in this segment of market was executed by him on and the last trade was executing by him on During this trading period, he never raised any objection to the trades during confirmation sent through his designated 1D including the contract notes. He has also received SMS confirmations on his designated Mobile. The derivatives include both Future & Options. The applicant was more focusing towards strategic theta trading. In this strategy there is more focus on Options but there is no restriction on executing trades in Future. The product notes mention that the exposure is taken in F&O Market for deriving benefits out of leverage. It is both Future & Option. His first trade in Nifty Future was done on and thereafter various trades were executed in Future on different dates but no dispute was ever raised. Even after mark to market loss was asked for. The applicant knew that there was unlimited risk and volatility of option could arise, so the position was hedged by the applicant by Index Future to minimize the loss. The 'Risks Disclosure Documents' for Future & Options were signed which clearly specify the risk relating thereto. It is further submitted that no margin call was made. The dated I 0 did not call for margin rather it was a call for mark to market loss. It was also submitted that 1500 shares of Jindal Steel & Power which were transferred by the applicant in August, 2010 were returned to him on after the last trading day which was There was no shortage of margin. The levy of delay charges is not connected with short-fall in margin. These charges are imposed in case of delay in making full payment of his pay-in obligation and is not relating to margin. The evidence of his delivery of ECN, SMS, and physical contract notes etc. have already been produced. The applicant claims that he has 20 years experience in stock market before II. He still did not make any complaint that if the trades were not as desired by him. 8. A perusal of the record would show that during the trading period from August, 2010 to the trades have been executed in the account of the applicant. The documents which have been filed by the respondent in the form of Log-in report and the bulk mailing certificate of the post office indicate that the respondent was regularly dispatching all relevant documents

5 to the correct address of the applicant. The applicant had been regularly receiving the contract notes executed in his account through his designated . SMS on his designated Mobile and physical contract notes and statement of account were also received by him but at no point of time before the entire money deposited was lost ever raised any objection against any of the trades. This belies his contention that the trades executed in his account were without his knowledge and consent. The applicant was aware of all the trades at all the times and if any of the trades in Index Future or Nifty were not as per his instructions, he would have immediately got the trading stopped and have disputed the trades. The delay in making complaints about the trades brings infirmity in his allegations. The applicant knew that the trades under theta strategy carried high risk. He had signed the Risk Disclosure document when MCA was executed. His contention that his signatures were obtained on blank MCA or that the witness to the MCA did not sign in his presence as he never visited Calcutta or that his Undertaking or Risk Disclosure Documents were fabricated documents is highly belated objection. His argument that Future trades were not included in theta strategy is also belied by the brochure which he himself filed with the statement of case. The derivative trades include Future & Option. The Index Option and hedging strategy is resorted to minimize the loss. The applicant does not deny that he was receiving the confirmation calls though he stated that they were not regular which fact does not inspire confidence. 9. The applicant has also made much ado about the of the respondent dated According to him, the respondent had asked for Rs. 2,80,000/- to fulfill the margin requirement but the which has been filed itself shows that it was towards mark to market loss in his investment in theta strategy. His contention that there was no difference between margin and Mark to Market loss is not true. Both are totally different. The respondent has filed the Margin statement which shows that at no point of time there was short fall in the margin necessitating call for replenishment of the margin by the respondent. 10. In the totality of facts and circumstances discussed above, I do not find that the applicant has succeeded in establishing his claim. The claim is liable to be dismissed. There is no question of his suffering any mental agony and harassment being aware about all the trades. Rather he was a consenting party to those trades which resulted in the loss. Even otherwise, his claim of Rs. 1,00,000/- towards mental agony and harassment is absolutely unjustified and cannot be allowed in the present arbitration proceedings.

6 11. As regards the counter claim of the respondent, I do not find that the respondent can be awarded the counter claim on the ground that the applicant by filing false claim has caused him harassment which justified compensation. The counter claim is also liable to be dismissed. 12. Accordingly, both the applicant's claim and the respondent's counter claim are dismissed. However, the parties are left to bear their own costs. Award announced on October 11, 2011 (M.A. KHAN) SOLE ARBITRATOR