1. What is Electronic Trading Evidence?

SEBI Master Circular for Stock Brokers SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/90 dated 17 July 2025, Para 35 superseding Circular dated 22.03.2018 and 26.09.2017, mandates every broker-bank to maintain:

1. Order Log – NEAT/CTCL log from Exchange – Order ID, time stamp to millisecond, user ID, terminal ID
2. Trade Log – Trade number, price, quantity, time
3. Pre-order Confirmation Evidence – Proof that order came from client before execution – Call recording, email, WhatsApp, app click trail, dealer note
4. IP Address & Device ID – For internet based trading (IBT), mobile app – IP, MAC, IMEI
5. Voice Recording – Mandatory recording of orders on phone – to be kept for 3 years
6. Contract Notes, Margin Ledger – E-contract with digital signature

If broker cannot produce (3) + (4), trade is presumed unauthorized – even if order log exists.

SEBI: “Object of requirement to maintain evidence of pre-order confirmation is to protect investors against unauthorized trading and to provide reliable record in event of dispute”

2. Legal Framework

• Contract: Sec 4 IT Act – Electronic record satisfies written contract. But burden under Sec 101-102 Evidence Act on broker to prove authorization.
• Evidence: Order log is electronic record – needs Sec 65B/63 BSA certificate from Exchange and broker’s IT head. WhatsApp order – valid as trade evidence if legally verifiable – SEBI 2025 Circular: broker shall establish verifiability of such communication in accordance with law applicable for electronic evidence
• Exchange Bye-laws: NSE/ BSE provide arbitration under SEBI Master Circular dated 11.08.2023 – CORD – Online Resolution – Conciliator → Arbitrator. Broker must produce logs before arbitrator.
• SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 – Reg 3,4 – Synchronized trades, algo manipulation.
• BNSS Sec 105 – Search of trading server to be videographed.

3. Types of Banking Electronic Trading Disputes

A. Client vs Bank-Broker – Unauthorized Trading:
Client says dealer did own trading. Bank says client instructed on phone. Case: Investor claims loss of Rs 17,63,236 – approached CORD empanelled by NSE per SEBI Master Circular dated 11.08.2023. Arbitrator asked broker to strictly prove SEBI circular dated 22.03.2018 on maintaining evidence of order placement. Failure = refund.

B. Algo / Co-location Advantage:
Certain brokers got preferential access to NSE’s electronic trading system servers through co-location facility – trading servers located physically close to NSE servers giving fractional time advantage. Leads to front-running dispute.

C. Synchronized / Circular Trading:
Buy and sell same quantity same time to create artificial volume – no change in beneficial ownership.

4. Landmark Case Laws

1. NSE Co-location Case – SEBI v. NSE – Supreme Court Disposal 2025 – Rs 1491 Crore Settlement

Facts: 2015 media reports that certain brokers (O.P.G. Securities etc.) gained unfair access to NSE co-location servers via early login, dark fiber. SEBI found lapses in TAP (Trading Access Point) system.

SEBI order: NSE, former CEOs Chitra Ramkrishna, Ravi Narain, Vikram Limaye penalized Rs 11 crore total for algo trading violations.

Final: Supreme Court disposed plea after settlement of Rs 643 crore + Rs 1491 crore disgorgement. Principle: Electronic trading evidence includes system audit – tick-by-tick (TBT) data, co-lo server logs, load balancer logs. Mere order book not enough – infrastructure logs are evidence. Failure to preserve IP logs and pre-order evidence for 38 of 50 sampled clients was held deficiency.

2. SEBI v. Rakhi Trading Pvt Ltd, (2018) 13 SCC 753 – Supreme Court

Core issue – Whether synchronized and reverse trades that did not result in any change of beneficial ownership and were executed at predetermined prices constituted fraudulent trade under SEBI FUTP Regulations.

Held: Yes. Synchronized trades create false appearance. Exchange trade log + order log matching is sufficient evidence of fraud, even without direct proof of intent. Intent can be inferred from pattern. This is now applied to bank proprietary trading desks.

3. Reliance Industries Ltd v. SEBI – Share Trading Manipulation – SC 2024-25

Reliance argued “Trading data, now available from NSE and SEBI themselves, shows other participants were simultaneously selling at prices lower than ours”. SC examining limits of regulatory interpretation in electronic trading environments. Clarifies that electronic order book depth is primary evidence – cannot convict on price alone without order flow.

4. Smifs Ltd v. Sudhir Garg – NSE Arbitration 18 May 2024

Investor claimed unauthorized F&O trades, loss Rs 37,12,280. Arbitrator held: Broker failed to produce pre-order confirmation as per SEBI Circular 22.03.2018 – call recording missing, WhatsApp not verifiable under Sec 65B. Awarded 50% loss to client. Rule: Strict compliance – broker to maintain evidence of order placement, not just execution.

5. Karvy Stock Broking Ltd – SEBI Order 2019 & Supreme Court 2020

Bank-broker pledged client securities via electronic Power of Attorney without authorization, misused for own trading – Rs 2000 crore fraud. SEBI banned Karvy. NSDL/CDSL logs, DP transaction logs, e-POA logs held admissible as electronic evidence with Sec 65B certificate from depository IT head. Established that e-DIS slip without 2FA is invalid.

6. SEBI Adjudication Order No. Order/JS/VC/2026-27/32760 – Ratification Doctrine

If client settles obligation (pays margin, takes delivery) after alleged unauthorized trade, it amounts to clear and unequivocal ratification, leaving no room for dispute under Clause 111 of SEBI Circular 2018 and Clause 35.2/35.3 of Master Circular 2025. So investor cannot claim after 15 days of contract note.

5. How to Win / Defend Such Case – Evidence Checklist

For Client:

1. Demand under RTI/SEBI: Order log, Trade log, CTCL user ID mapping, IP log, voice recording.
2. Check contract note sent within 24 hrs? If not, trade void.
3. Show no pre-order evidence – WhatsApp without Sec 65B certificate is inadmissible – as per 2025 Master Circular.
4. File before CORD within limitation – 3 years from cause.

For Bank-Broker:

1. Preserve 3 things compulsorily: (a) Pre-order confirmation – recorded call with timestamp, (b) Order placement log from Exchange with certificate from NSE (NSE provides under Sec 65B), (c) IP/Device log with 65B certificate from your IT head.
2. If using WhatsApp – get Meta WhatsApp Business API logs + Sec 65B certificate and maintain hash. SEBI now allows WhatsApp as valid if legally verifiable.
3. E-contract note must be digitally signed and sent within stipulated time, with acknowledgment log.

Failure Consequence:

• No IP log = Presumption of unauthorized trading – SEBI thematic inspection held broker deficient for failing to preserve IP-address information for internet-based trading.
• No voice recording = trade reversed, broker penalized.