Illiquid stock option: These many entities avail SEBI's fresh settlement scheme

A total of 10,980 entities settled the cases pertaining to alleged manipulation of illiquid stock options at BSE with SEBI under the settlement scheme 2022, the markets regulator said on Friday.

SEBI introduced the settlement scheme 2022 to provide a one-time opportunity to the entities against whom proceedings were initiated, and appeals against the proceedings are pending before any forum or authority.

This came after the Securities Appellate Tribunal (SAT) passed an order in May 2022 on the matter of illiquid stock options.

The scheme was initially kept open for a period of three months from August 22 to November 21 and it was later extended till January 21, 2023, considering the interest of a large number of entities to avail the scheme.

"A total of 10,980 entities availed the benefit of the scheme and remitted the specified settlement amount respectively," the Securities and Exchange Board of India (SEBI) said.

While most of the entities paid either Rs 1 lakh or Rs 2 lakh as settlement charges to settle the cases, a few entities even remitted anywhere between Rs 13 lakh and Rs 17 lakh.

As a part of the ongoing surveillance, SEBI noted several instances of trades by a set of entities trading in the options segment of certain stocks listed on 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.

Accordingly, an analysis of the stock options segment of BSE for the period April 2014 to September 2015 was carried out.

It was observed 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 BSE.

Out of 21,652 entities that had executed trades in 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 the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules.

Following this, the regulator initiated adjudication proceedings against these entities. Some of the entities against whom orders were passed in the adjudication proceedings had approached SAT.

During the course of the hearing in a group of appeals, the appellate tribunal, in its order in May 2022, observed that "SEBI should reconsider and seriously give a thought in coming out with a fresh Scheme".

In January 2021, Sebi announced that 1,018 entities, allegedly involved in the manipulation of illiquid stock options, had availed the benefit of its one-time settlement scheme.

The cases were settled against the entities after they paid settlement charges in the range of Rs 5 lakh to Rs 42 lakh.