Firms can use illiqiud stock option settlement scheme till Jan 21, as SEBI extends deadline

Markets regulator Sebi has extended the deadline of the settlement scheme on illiquid stock options cases till January 21 for the entities who were involved in reversal trades in the stock options segment on BSE in 2014 and 2015. The Settlement Scheme 2022, which commenced on August 22, was scheduled to end on November 21. However, it has been observed during the last few days, a large number of entities have shown interest in availing the scheme.

Considering the interest of entities in availing the scheme, the competent authority has extended the period of the scheme till January 21, 2023, Sebi said in the notice.  The scheme provides an opportunity for the entities who have executed reversal trades in the illiquid stock options segment from 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.  This came after Securities Appellate Tribunal (SAT) passed an order in May this year on the matter of illiquid stock options.

 In August, Sebi framed a Settlement Scheme (Scheme, 2022) for the entities against whom proceedings have been initiated and are pending before any forum or authority, viz. Courts/SAT, Adjudicating Officer or Recovery Officer (provided an appeal has been filed and the same is pending before the SAT/Court.  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.  As part of the ongoing surveillance, Securities and Exchange Board of India (Sebi) had come across several instances wherein a set of entities was consistently making losses by their trading in options on individual stocks listed on BSE.  It noted that the trading of these entities appeared abnormal because they were consistently seen to be making significant losses by their trades, which were reversed with the same counterparties either on the same day or the next day.

 Accordingly, an analysis of the stock options segment of BSE for the period April 1, 2014, to September 30, 2015, was carried out.  It was observed that there were several entities that consistently made significant losses, whereas there were others who consistently made a significant profit by executing reversal trades in stock options on BSE.  Out of 21,652 entities that executed trades on BSE stock options segment, a total of 14,720 were involved in the generation of artificial volume by executing non-genuine or reversal trades on the same day.

 Out of these 14,720 entities, Sebi initiated adjudication proceedings against 567.   Meanwhile, the SAT, through an order in October 2019 in the matter of RS Ispat Ltd, directed Sebi to consider holding a Lok Adalat or adopting any other alternative dispute resolution process with regard to the illiquid stock options.  .