Sebi starts one-time settlement opportunity in illiquid stock option cases

Markets regulator Sebi on Monday proposed a one-time settlement opportunity for the entities that executed reversal of trades in the stock options segment of BSE during 2014 and 2015.

The one-time settlement period will commence on August 1 and end on October 31, the Securities and Exchange Board of India (Sebi) said in a notice.

After the expiry of the scheme, entities who do not avail the one-time settlement opportunity will be liable for action, it added.

Underthescheme,the entities whoexecutedtradereversals on the stock options segment of BSE during the period April 1, 2014 to September 30, 2015, against whom any proceedings are pending, are eligible to avail the settlement opportunity.

To arrive at an indicative settlement amount, Sebi hasconsidered three objective parameters -- artificial volume, number of non-genuine trades and number of contracts resulting in creation of artificial volume or non-genuine trades.

Further, a uniform consolidated settlement factor in all cases wherein the entities had executed reversal trades, would be applicable while arriving at the indicative settlement amounts.

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

It noted that 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 who consistently made significant losses, whereas there were others who consistently made significant profit by executing reversal trades in stock options onBSE.

Out of 21,652 entities that executed trades on BSE stock options segment, a total of 14,720were involved in generation of artificial volume by executing non-genuine or reversal trades on the same day, Sebi noted.

Further, of the 14,720 entities involved in generation of artificial volumes by executing non-genuine or reversal trades, Sebi said

it has initiated adjudication proceedings against 567 entities.

Meanwhile, the SAT, through an order in October 2019 in the matter of R S Ispat Ltd directed Sebi to consider holding a Lok Adalat or adopting any other alternative dispute resolution process with regard to the illiquid stock options.

Accordingly, Sebi has decided to introduce a settlement scheme in illiquid stock options cases.

It said any entity desirous of making an application for one-time settlement under the scheme will have to submit a settlement application, along with an application fee of Rs 15,000 in case of individuals and Rs 25,000 in case of body corporates in the specified format.

According to Sebi, remittance of settlement amount will be done through online platform.