SEBI launches one-time settlement scheme in illiquid stock option cases

The Securities and Exchange Board of India (SEBI) on July 27 introduced a one-time settlement scheme for entities that executed trade reversals in the stock options segment of BSE from April 1, 2014, to September 30, 2015. “It was observed that there were several entities who consistently made significant losses, whereas there were others who consistently made significant profit by executing reversal trades in stock options on the BSE,” the market regulator said in a circular. The one-time settlement period will commence on August 1 and end on October 31. After the expiry of the scheme, entities who do not avail the one-time opportunity will be liable for action. Under the scheme, the entities against whom any proceedings are pending are eligible to avail the settlement opportunity. “It has been observed that out of 21,652 entities that executed trades on BSE Stock Options Segment, a total of 14,720 entities were involved in generation of artificial volume by executing non-genuine/reversal trades on the same day. Out of the 14,720 entities involved in generation of artificial volumes by executing non-genuine/reversal trades, SEBI has initiated adjudication proceedings against 567 entities," the circular reads. Moneycontrol had reported on June 25 that the Sebi board might discuss those issues in its board meeting. The SEBI board has considered three objective parameters -- artificial volume, number of non-genuine trades and number of contracts resulting in the creation of artificial volume/ non-genuine trades to arrive at an Indicative Settlement Amount. According to Anil Choudhary, Partner at FinSec Law, this is a great move by SEBI as it would not only reduce the administrative burden on it from having to conduct numerous and lengthy adjudication proceedings but also beneficial to market participants by providing them a one-time opportunity to settle the proceedings initiated against them without having the stigma of a penalty order. “This is especially crucial for market intermediaries as penalty orders by SEBI often damage their reputation amongst their clients and partners in the financial market thereby having a negative impact on their businesses," he observed. As per the circular, the settlement application fee is Rs 15,000 for individuals and Rs 25,000 for corporates.