768 Entities Settled Stock Options Cases under SEBI’s 2024 Settlement Scheme

Moneylife Digital Team 19 August 2024

Investor Interest

A total of 768 entities settled cases related to alleged non-genuine trades at the stock options segment on the BSE under the settlement scheme introduced in 2024, the market regulator Securities and Exchange Board of India (SEBI) says. The majority of the entities out of the 768 have paid Rs1.20 lakh as settlement amount, while a few have paid Rs2.40 lakh. The highest settlement award of Rs19.68 lakh is paid by Shaveta Commodity Traders Pvt Ltd.

In March this year, SEBI introduced a settlement scheme referred to as the ISO settlement scheme 2024. Initially, the scheme was open for two months but was later extended up to 10 June 2024. "A total of 768 entities availed the benefit of the scheme and remitted the specified settlement amount and legal cost, respectively," SEBI says.

During its routine surveillance, SEBI noted several instances of trades by a set of entities trading in the options segment of certain stocks listed on the Bombay Stock Exchange (BSE). These trades appeared to be abnormal since they were consistently found to result in significant losses and were then reversed with the same set of counterparties, either on the same day or the next day.

SEBI conducted an analysis of the stock options segment of BSE from 1 April 2014 to 30 September 2015 pursuant to which it was confirmed that several entities were consistently incurring significant losses through their trades, while several others were consistently making significant profits, by executing reversal trades in the stock options segment on the BSE.

It was observed that the trading was carried out in the illiquid options of certain scrips in the futures and options (F&O) segment of BSE. It was further noted that out of 21,652 entities that had executed trades on the BSE stock options segment, a total of 14,720 entities were involved in the generation of artificial volumes by executing non-genuine or reversal trades on the same day, in violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

SEBI then initiated adjudication proceedings against these entities.

Some entities challenged SEBI decisions by appealing to the securities appellate tribunal (SAT). In its order on 13 May 2022, SAT observed that SEBI should reconsider and seriously consider coming out with a fresh scheme under Clause 26 of the Settlement Regulations 2018.

Accordingly, SEBI introduced a settlement scheme called the 'SEBI Settlement Scheme 2022'. Upon closure of the Settlement Scheme, 2022, SEBI continued adjudication proceedings against the remaining entities.

In September 2023, SAT directed that if a new settlement scheme is introduced, the appellants would be eligible to benefit from it, and the Scheme would cover their cases.

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