SEBI to initiate action against 14,720 entities for 'non-genuine trades'

The Securities and Exchange Board of India (SEBI) revealed that action would be initiated against a total of 14,720 entities for executing non-genuine trades.

As per an official order, the SEBI stated that a preliminary examination was conducted in the matter of Illiquid Stock Options for the period April 1, 2014 to March 31, 2015, during which it was noticed that a set of entities was repeatedly incurring significant losses by executing reversal trades in the Stock Options segment of the BSE, and another set of entities was repeatedly making significant profits by becoming their counterparties in orchestrated trades with a common objective of intended execution of non-genuine trades.

Upon analysis of the trading activity of these entities, it was observed that the scheme, plan, device and artifice employed in executing reversal trades in illiquid stock option contracts at irrational, unrealistic and unreasonable prices, was prima-facie a fraud on the securities market in as much as it involved non-genuine/manipulative transactions in securities and misuse of the securities market.

59 such entities were shortlisted in the preliminary examination based on various parameters including reversal of trades with the same counterparty either on the same day or the next day, buying and selling equal units of stock options of scrip, profit made or loss incurred by each entity by reversing the transactions in excess of Rs 5 crore, and so on.

Furthermore, the SEBI had conducted a detailed investigation, whereby 14,720 entities were identified to be involved in executing non-genuine trades in the BSE's Stock Options segment during the investigation period. Out of the above 59 entities, two were not found to meet the parameters outlined.

Therefore, the market regulator clarified that adjudication proceedings have been initiated against 567 entities, including 56 of the above-mentioned 59 entities. It also clarified that any person found to be in violation of the SEBI (PFUTP) Regulations, 2003, would be liable to a penalty which shall not be less than Rs 5 lakh but may extend to Rs 20 lakh.

Furthermore, the SEBI stated that in the matter of Illiquid Stock Options, the penalty would be Rs 5 crore or three times the amount of profits made out of such practices, whichever is higher.

While the BSE took steps to prevent/significantly reduce the possibility of misuse of the exchange platform in such a manner, the SEBI stated that there was a need for a similar approach in taking action against the various entities, even though the difference in the amount of profit made or loss incurred through the non-genuine trades varies.