The Securities and Exchange Board of India (SEBI) has recently taken stringent actions against non-genuine trading activities by imposing fine of Rs. 50 lakhs on 10 companies. This move of the SEBI aims to control fraudulent practices and protect the investor's interest. This enforcement action showcases SEBI's proactive approach in maintaining market integrity and transparency, and creating an environment that is favorable for both the investors and market participants. The SEBI has recently introduced the third settlement scheme1 offering the entities the benefit of settling the proceedings, and to avoid the prolonged legal proceedings and associated expenses. This article delves into the SEBI's enforcement action against the 10 companies and scrutinizes the third settlement scheme introduced by the SEBI.
SEBI's Enforcement Action
The Securities and Exchange Board of India carried out an investigation into the trading activities of certain entities from April 2014 to September 2015.2 During the investigation, the SEBI found out that over 2.91 lakh trades comprised a substantial 81.38 per cent of all the trades executed in the stock options segments of the BSE during the investigation period were non- genuine trades.3
The non-genuine trades resulted in the creation of artificial volume of the tune of 826.21 crore units or 54.68 per cent of the total market volume in the stock options segment of the BSE4. It was observed that these ten entities were among several other entities that were involved in executing reversal trades within the stock options segment of the Bombay Stock Exchange. By engaging in such transactions, they violated the provision of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.
Third Settlement Scheme
On March 6, 2024, the Securities and Exchange Board of India, has introduced the third settlement scheme for all those organizations involved in reversal trade in the stock option segment on Bombay Stock Exchange in 2014 and 2015. The scheme will kick start on March 11, 2024 and conclude on May 10, 2024.
The scheme offers a settlement opportunity to all those entities which have executed reversal trades in the stock option between April 1, 2014 and September 30, 2015 and against whom proceedings have been initiated or pending. The scheme offers the entities the benefit of settling the proceedings, and to avoid the prolonged legal proceedings and associated expenses.
However, it is not the first time the SEBI has come up with the settlement scheme. The regulator has previously introduced a one-time settlement scheme for the entities in 2020.
In January 2021, the regulator announced that 1,018 entities, allegedly involved in the manipulation of illiquid stock options, had availed the benefit of its one-time settlement scheme and in March, 2023, the regulator disclosed that a total of 10,980 entities availed the benefit under the settlement 2022.5
Conclusion
In conclusion, SEBI's imposition of 50 lakhs fine on ten companies for non-genuine trade showcases the regulators commitment to maintain market integrity and to protect the interest of the investors. These actions serves as a strong message to other entities which are engaged in similar activities, discouraging them from continuing such practices in the future. Additionally, SEBI's introduction of third settlement scheme provides a proactive approach to resolve such disputes efficiently and offering the entities an opportunity to settle the prolonged legal proceedings and associated expenses. Together, these measures contribute to the sustainable growth of the Indian stock market and investor confidence.
Ritvik Kashyap, Intern at S.S. Rana & Co. has assisted in the research of this article.
Footnotes
1 Available at: chromeextension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.sebi.gov.in/documents/Public_N extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.sebi.gov.in/documents/Public_N otice-ISO_Settlement_Scheme_2024.pdf
3 Available at: https://www.newindianexpress.com/business/2022/Jan/26/sebi-fines-50- lakh-on-10-entities-in-illiquid-stock-options-case-2411537.html
4 Available at: https://www.newindianexpress.com/business/2022/Jan/26/sebi-fines-50- lakh-on-10-entities-in-illiquid-stock-options-case-2411537.html
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