Sebi Imposes Rs 45 Lakh Penalty On 9 Entities For ‘Non-Genuine’ Trades: Know Details

In the latest crackdown on “non-genuine” trades, Sebi has slapped Rs 45 lakh fines on nine entities for “reversal trades” on illiquid stock options on the Bombay Stock Exchange (BSE).

The Securities and Exchanges Board of India (Sebi), on August 29, 2023, imposed penalties totalling Rs 45 lakh on nine entities for indulging in “non-genuine” trades in the illiquid stock options segment on the Bombay Stock Exchange (BSE). These entities were found engaging in illegal trade practices involving illiquid stock options on BSE.

Sebi imposed a fine of Rs 5 lakh each on Vivek Company, Soundlight Projects, SR Realbuild, Srijan Dealers, Manomay Dealmark, Zodiac Vanijya, VKJ Trexim, Hans Homes, and Guruteg Bahadur Rice Mill.

Non-Genuine Trade and How It Impacts Investors?

The orders came after Sebi observed large-scale reversal trades in the illiquid stock options segment on BSE. These transactions were artificially inflating trading volumes on the exchange.

In 2018, when Sebi initiated a probe into certain entities for transactions conducted between April 2014 and September 2015. Sebi found large volumes of reversal trades during this period.

The accused entered into “reversal trades” with each other on the same day at different prices, thereby shifting gains from one to the other. A “reversal trade” is where a person buys a particular stock and sells it back to the same person. These trades generated artificial volumes on the exchange, leading to a false or misleading appearance of trading entities.

Reversal trades are non-genuine as they are executed in the normal course of trading, leading to a false or misleading appearance of generating trading volumes, the regulator said. The nine entities penalised in the latest orders were among those responsible for executing reversal trades.

They generated false trading volumes to deceive unsuspecting investors into believing that it was a bull run. It can eventually lead to a market crash and cause losses.

“The findings revealed that 14,720 entities were involved in executing non-genuine trades in BSE’s stock options segment during the investigation period, and all trades executed in the stock options segment of BSE during the investigation period, 81.38 per cent of the trades, (or) 291,643 trades, were trades which involved a reversal of buy and sell positions by the clients and counterparties in a contract,” Sebi said.

Sebi launched the Sebi Settlement Scheme 2022 to provide entities involved in trading illiquid stock options an opportunity to settle legal matters by paying a fine before November 21, 2022.

Further, to enforce fair trading practices, Sebi has been consistently levying fines against those found culpable. In May 2023, 10 entities were fined Rs 50 lakh for illegal practices during the same period. Additionally, in August, four entities faced penalties amounting to Rs 20 lakh.

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