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

Under the scheme, the entities who executed trade reversals 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 has considered three objective parameters -- artificial volume, number of non-genuine trades and number of contracts resulting in creation of artificial volume or non-genuine trades.

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. Under the scheme, the entities who executed trade reversals 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 has considered 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, Sebi came 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  on BSE.

Out of 21,652  entities that executed  trades  on  BSE  stock options segment,  a  total  of  14,720 were 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.