Markets regulator Sebi’s settlement scheme on illiquid option cases will be open for another five days till Monday and it has received a strong response with over 7,000 entities already applied under this by paying the settlement amount, sources said on Wednesday.
The scheme provides an opportunity for the entities who have executed reversal trades in the illiquid stock options segment of BSE between April 1, 2014, to September 30, 2015, and against whom enforcement action initiated by Sebi is pending, to settle the case.
The present scheme has been made easier as the entities can apply online instead of submission of physical papers. The scheme was also made attractive so that many entities could avail the same. Most of the entities can settle their proceedings by paying only Rs 1 lakh as a settlement amount.
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According to the sources, more than 7,000 entities have already applied under the Settlement Scheme by paying the settlement amount.
The advantage of participation in the scheme is that entities are not subjected to further quasi-judicial proceedings on the same matter. The settlement is also done without admission of guilt.
“The scheme is highly beneficial for an entity against whom enforcement action is pending. It not only saves time and costs for the entity but also the entity does not get a stigma of a monetary penalty after the proceedings,” said a securities market lawyer.
In the course of its investigation, Sebi found that entities entered into reversal trades with each other on the same day at different prices, thereby shifting gains from one to the other.
The regulator observed that over 14,000 entities had indulged in reversal trades in options, which were illiquid. It further alleged that these trades were non-genuine in nature and created a false and misleading appearance of trading and amounted to misuse of the stock exchange platform and accordingly, initiated adjudication proceedings against these entities.
In market parlance, trades in which a person buys a particular stock and sells it back to the same person are referred to as reversal trades.
In May, the Securities Appellate Tribunal opined that Sebi should reconsider and seriously give a thought to coming out with a fresh scheme under settlement Regulations. Such a scheme can be a one-time scheme for this class of person. Following this, Sebi brought out the new settlement scheme.
This is not the first time the regulator has given the chance to these entities to settle the case. In 2020, Sebi provided a one-time settlement scheme for the entities. Initially, the scheme was available from August 1 to October 31, 2020, but later extended till December 31, 2020, in view of the large-scale disruption caused by the Covid-19 pandemic.
As many as 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.
