Sebi to take action against 14,720 entities for 'non-genuine trades'

New Delhi: Sebi will take action in a phased manner against 14,720 entities for "non-genuine trades" through illiquid stock option segment as it clamps down on fraudulent activities in the securities market.

Adjudication proceedings have been initiated against 567 entities involved in such trades in the first phase, according to a Sebi order dated April 5.

The markets regulator came across violations by 14,720 entities while it was probing 59 entities in a case related to alleged trading irregularities in stock options segment of the BSE.

With regard to 59 entities, Sebi had initiated a preliminary examination in the matter of illiquid stock options for the period from April 1, 2014 to March 31, 2015 during which it was noticed that the entities were repeatedly incurring significant losses by executing reversal trades in the stock options segment of BSE.

Another set of entities were repeatedly making significant profits by becoming their counter parties in orchestrated trades with a common objective of intended execution of the non-genuine trades.

Upon analysis of the trading activity of these entities, Sebi observed that the scheme, plan, device and artifice employed in executing reversal trades in illiquid stock option contracts at "irrational, unrealistic and unreasonable prices", was prima-facie a fraud on the securities market in as much as it involved non-genuine or manipulative transactions in securities and misuse of the market.

Through an interim order in August 2015, Sebi had restrained the 59 entities from the securities markets till further directions. The interim directions were confirmed by other orders in July 2016 and August 2016 after providing "certain relaxations".

Later, the scope of investigation was expanded to cover all the entities that had indulged in executing reversal trades in BSE's Stock Options segment. The time period was also extended to September 30, 2015.

"The investigation has found that 14,720 entities were involved in executing non-genuine trades in BSE's Stock Options segment during the investigation period," Sebi Whole Time Member Madhabi Puri Buch said in the order.

She also noted that adjudication proceedings have been initiated against 567 entities in the first phase.

According to the regulator, there is a need for some similarity of approach in taking action against the various entities even though the difference in amount of profit made or loss incurred through the non-genuine trades varies.

The directions have been disposed of against two out of the 59 entities as the regulator did not come across any adverse findings, as per the latest order.

"With reference to the remaining 57 entities, investigation has found that these 57 entities along with 14,663 other entities, were involved in executing non-genuine trades thereby violating... Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations," Buch said.

Since the 57 entities would be subject to adjudication proceedings, the Securities and Exchange Board of India (Sebi) has decided to drop the proceedings that were initiated earlier.