Introduction to the Scheme
The Securities and Exchange Board of India (SEBI) has rolled out its Third Settlement Scheme specifically targeting entities involved in the Illiquid Stock Options (ISO) and reversal trades at the Bombay Stock Exchange (BSE). This scheme, operational from March 11, 2024, to May 10, 2024, is established under Section 15JB of the SEBI Act, 1992, alongside Regulation 26 of the SEBI (Settlement Proceedings) Regulations, 2018.
Purpose of the Settlement Scheme
- Target Group: The scheme is aimed at entities that engaged in reversal trades of stock options between April 1, 2014, and September 30, 2015. These entities, which have pending proceedings against them, are being offered a chance to settle under predefined terms.
- Post-Scheme Enforcement: Post the closure of the scheme, entities that fail to settle will face legal actions as prescribed under securities laws.
Historical Context
- Previous Schemes: In 2020, SEBI initiated a similar one-time settlement scheme that concluded in January 2023, benefiting 10,980 entities. Settlement charges during this period ranged from Rs 1 lakh to Rs 42 lakh.
- Surveillance Findings: SEBI’s surveillance from April 2014 to September 2015 highlighted manipulative practices by over 14,000 out of 21,652 entities trading in BSE stock options, involving artificial volume generation through non-genuine or reversal trades.
Mechanism of Reversal Trades
- Trading Anomalies: Reversal trades are marked by entities executing trades with the same counterparties on the same day but at significantly different prices, which are flagged as artificial and non-genuine by regulators.
- Manipulation and Risks: These trades, particularly with ISOs, are used by fraudulent entities to manipulate the prices and volumes of securities, posing high risks and potential substantial losses.
Scheme Specifics
- ISO Scheme, 2024: The latest scheme targets entities with pending proceedings in the ISO segment at BSE, providing them a structured opportunity to resolve their issues within the specified timeframe.
Conclusion
This Third Settlement Scheme by SEBI represents a proactive approach to addressing and rectifying the irregularities and manipulations in the trading of illiquid stock options on the BSE. By setting a clear deadline and offering a settlement opportunity, SEBI aims to enhance market integrity and investor trust in the regulatory framework. Entities involved in past irregularities are encouraged to take advantage of this scheme to avoid subsequent legal repercussions.
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