SEBI Introduces Third Settlement Scheme For Illiquid Option Cases

The scheme offers a settlement avenue to entities involved in reversal trades in stock options between April 1, 2014, and September 30, 2015, who are currently facing pending proceedings

SEBI identified numerous instances where a group of entities consistently incurred losses through their options trading on individual stocks listed on BSE

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The Securities and Exchange Board of India (SEBI) on Wednesday unveiled a third settlement scheme aimed at entities engaged in reversal trades in the stock options segment on BSE during 2014 and 2015. According to a statement by SEBI, the scheme will kick off on March 11 and wrap up on May 10.  Following the conclusion of the scheme period, entities that do not avail themselves of this settlement opportunity will face actions in accordance with the relevant provisions of securities laws. Additionally, the regulator announced that frequently asked questions regarding the scheme will be accessible on the websites of SEBI and BSE starting from March 11.

The scheme offers a settlement avenue to entities involved in reversal trades in stock options between April 1, 2014, and September 30, 2015, who are currently facing pending proceedings before any authority or forum. By participating in the scheme, these entities can resolve ongoing proceedings and circumvent further delays, as well as the accompanying protracted legal procedures and expenses, among other benefits.

The regulator has extended an opportunity for these entities to resolve the case before as well. Previously, SEBI introduced a one-time settlement scheme for these entities in 2020, accessible from August 2022 to January 2023.

In January 2021, SEBI reported that 1,018 entities suspected of manipulating illiquid stock options had taken advantage of its one-time settlement scheme. Subsequently, in March 2023, the regulator revealed that 10,980 entities had utilised the benefits provided under the settlement scheme of 2022.

These cases were resolved against the entities following their payment of settlement charges ranging from Rs 1 lakh to Rs 42 lakh. During ongoing surveillance, SEBI identified numerous instances where a group of entities consistently incurred losses through their options trading on individual stocks listed on BSE.

These entities' trading activities were flagged as unusual due to their consistent incurring substantial losses through trades, which were frequently reversed with the same counterparties either on the same day or the subsequent day. Consequently, an examination of the stock options segment of BSE from April 1, 2014, to September 30, 2015, was conducted.

The analysis revealed that numerous entities consistently suffered significant losses, while others consistently garnered substantial profits by executing reversal trades in stock options on BSE. Out of the 21,652 entities engaging in trades within the BSE stock options segment, over 14,000 were implicated in generating artificial volume through the execution of non-genuine or reversal trades on the same day.