SEBI Extends Settlement Scheme for Illiquid Stock Options To Dec 31, Due to CoVID Pandemic

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CoVID-19 Pandemic has caused large-scale disruptions in our economy. Due to this, the Securities and Exchange Board of India (SEBI) has extended the one-time settlement scheme for entities that executed the reversal of trades in the stock options segment of the BSE during 2014 and 2015. The market regulators have extended the settlement scheme till December 31 now.

The regulators introduced the settlements scheme in July. It began on August 1, 2020, and was previously going to end on October 31, 2020.

However, due to the pandemic’s disruption, SEBI has received numerous representations seeking an extension of the scheme’s period. SEBI noted this in a public notice issued late on Saturday.

Additionally, it also said, “Upon consideration of the same, the competent authority has approved the extension of the period of the scheme till December 31, 2020.”

SEBI issued a notice in July which states that entities who do not make use of the one-time settlement opportunity would be held accountable for action after the expiry of the scheme. Furthermore, an entity that wants to make a one-time settlement application has to submit a settlement application in the specified format with the applicable application fee.

Under this scheme, the entities which executed trade reversals on the stock options segment of the BSE from April 1, 2014, to September 30, 2015 period. The entities which have any proceedings pending against them are also eligible to avail of the settlement opportunity.

The regulators have said that they have judged three objective parameters to arrive at an indicative settlement amount. These three parameters were:

  • Artificial Volume
  • Number of Non-Genuine Trades, and
  • Number of Contracts resulting in the creation of Artificial Volume or Non-Genuine Trades.

SEBI came across numerous instances where entities were making consistent losses

Moreover, while arriving at the indicative settlement amounts, a uniform consolidated settlement factor would be applicable. This was for all the cases where the entities had executed reversal trades.

As part of their ongoing surveillance, SEBI also came across numerous occasions wherein a set of entities were consistently making losses by trading their options on BSE listed individual stocks.

SEBI noted that the trading of these entities appeared abnormal. It is because they were appearing to be consistently making significant losses by their trades. Reversal with the same counterparties occured either on the same day or the next. Subsequently, SEBI carried out an analysis of the stock options segment of the BSE from April 1, 2014, to September 30, 2015.

They observed that there were a lot of entities who were consistently making significant losses. Although there were others who executed reversal trades in stock options on the BSE and consistently made significant profits.

SEBI said that a total of 14,720 entities were involved in the generation of artificial volume by executing non-genuine reversal trades on the same day. These were out of the 21,652 entities that executed trades on the BSE stock options segment.

Source: Mint

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