Sebi's one-time settlement scheme fetches a dismal Rs 10-12 crore

The Securities and Exchange Board of India’s (Sebi’s) one-time settlement scheme, which ended on Thursday for entities allegedly involved in manipulating illiquid stock options, has received a muted response.
 

According to sources, about 250 entities took the opportunity, which had mopped up a mere Rs 10-12 crore.
 

“This is an initial estimate and the figures were reported till Tuesday. There is high probability that the numbers could be revised upward because the scheme is open till midnight on Thursday,” said a person privy to the development.
 

While an official target has not been announced, the regulator is expected to collect Rs 1,500-2,000 crore, assuming a majority of the 14,000 alleged wrongdoers would avail of this window. Sources say that despite the cold response, the regulator was not in favour of extending the deadline of the scheme.
 

Some industry bodies had written to the regulator, seeking an extension till March 31 due to pandemic-induced disruption.

The one-time settlement period was scheduled to end on October 31 but later was extended till December 31. Industry experts attributed the lack of interest to high settlement costs and fears of prosecution by other enforcement agencies.
 

Under Sebi’s normal legal proceedings, the penalty works out to Rs 5-10 lakh. Under this scheme, the settlement amount could be as high as Rs 60 lakh.
 

Sebi on July 27 had proposed a one-time settlement for entities against whom proceedings had been initiated for executing bogus trades in the BSE’s stock options segment between April 1, 2014, and September 30, 2015.

 

In a bid to evade taxes, they allegedly showed losses in their trades. They were later reversed by the counterparties the same day or the next.
 

The scheme does not provide immunity from prosecution by other agencies, including the Income-Tax (I-T) Department. But those ignoring the scheme will be liable to legal action.
 

Sebi said it had observed that of the 21,652 entities that executed such trades, 14,720 were involved in generating artificial volumes by executing non-genuine and reversal trades on the same day. It had initiated legal action against 567 entities. In some cases, orders levying penalties below Rs 10 lakh have been passed.
 

“Only a few entities that are concerned about their reputation must have availed of the scheme. This is because by opting for such a settlement, the entity neither admits nor denies the findings, but agrees to abide by the settlement order,” said a market expert.
 

He said a few market participants might opt to pay a higher settlement fee (as compared with the penalty) because that precludes the stigma of a penalty order and prefer an early resolution of the dispute without admitting or denying any wrongdoing.
 

Sebi on August 20 had put out frequently asked questions on the scheme’s various aspects. Citing the parameters, it shared a link where an entity could check eligibility and the settlement amount by entering its PAN details.
 

It can also see the calculation of artificial volume and non-genuine trades executed by it.
 

Sebi has considered three parameters — artificial volume, the number of non-genuine trades, and the number of contracts resulting in the creation of artificial volume — to arrive at an indicative settlement amount.
 

It also said those against whom notice was issued by the adjudicating officer could avail of the scheme.