Sebi introduces settlement third scheme on illiquid stock option cases

Capital markets regulator Sebi on Wednesday introduced a third settlement scheme for entities involved in reversal trades in the stock options segment on BSE in 2014 and 2015.

The scheme will commence on March 11 and conclude on May 10, the Securities and Exchange Board of India (Sebi) said in a statement.

After the expiry of the scheme period, actions as per the relevant provisions of securities laws will be continued against the entities which do not avail this opportunity for settlement.

Moreover, the regulator said that frequently asked questions with respect to the scheme will be available on the websites of Sebi and BSE on March 11.

The scheme would provide a settlement opportunity to all the entities that have executed reversal trades in the stock options between April 1, 2014, and September 30, 2015, against whom proceedings have been initiated and are pending before any authority or forum.

By availing the benefit of the scheme, the entities can settle such proceedings and avoid further delay in the conclusion of the said proceedings and the associated long-drawn legal processes or expenses, among others.

This is not the first time the regulator has given the chance to these entities to settle the case. Earlier, Sebi provided a one-time settlement scheme for the entities in 2020. The scheme was available gain from August 2022 to January 2023.

In January 2021, Sebi announced that 1,018 entities, allegedly involved in the manipulation of illiquid stock options, had availed the benefit of its one-time settlement scheme and in March 2023, the regulator disclosed that a total of 10,980 entities availed the benefit under the settlement scheme 2022.

The cases were settled against the entities after they paid settlement charges in the range of Rs 1 lakh to Rs 42 lakh.

As part of the ongoing surveillance, Sebi came across several instances wherein a set of entities was consistently making losses by their trading in options on individual stocks listed on BSE.

It noted that the trading of these entities appeared abnormal because they were consistently seen to be making significant losses by their trades, which were reversed with the same counterparties either on the same day or the next day.

Accordingly, an analysis of the stock options segment of BSE for the period April 1, 2014, to September 30, 2015, was carried out.

It was observed that there were several entities that consistently made significant losses, whereas there were others who consistently made a significant profit by executing reversal trades in stock options on BSE.

Out of 21,652 entities that executed trades on the BSE stock options segment, over 14,000 were involved in the generation of artificial volume by executing non-genuine or reversal trades on the same day.