Background

The Capital Market Regulator- Securities and Exchange Board of India (SEBI) observed that out of 21,652 entities that executed trades on BSE Stock Options Segment, a total of 14,720 entities were involved in generation of artificial volume by executing non-genuine/reversal trades on the same day and out of the 14,720 entities involved in generation of artificial volumes by executing non-genuine/reversal trades, SEBI has initiated adjudication proceedings against 567 entities consistently making losses by their trading in options on individual stocks which are listed on Bombay Stock Exchange (BSE). 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. Hence, an analysis of the stock options segment of Bombay Stock Exchange (BSE) for the period April 1, 2014 to September 30, 2015 was carried out. It was observed that there were several entities who consistently made significant losses, whereas there were others who consistently made significant profit by executing reversal trades in stock options on the BSE. Meanwhile, the Hon’ble SAT vide its Order dated October 14, 2019 in the matter of RS Ispat Ltd Vs SEBI, has inter alia directed as follows: “…We are adjourning this matter today, so that SEBI may consider holding a LokAdalat or adopting any other alternative dispute resolution process with regard to the Illiquid Stock Options.”

With the aforesaid background, the SEBI has decided to introduce a Settlement Scheme (“the Scheme”) in terms of Regulation 26 of SEBI (Settlement Proceedings) Regulations 2018. The Scheme proposes to provide a onetime settlement opportunity to the entities that have executed trade reversals in the stock options segment of BSE during the period from April 1, 2014 to September 30, 2015 against whom any proceedings are pending.

Parameters

The SEBI has considered three objective parameters viz., (i) artificial volume, (ii) number of non-genuine trades and (iii) number of contracts resulting in creation of artificial volume/non-genuine trades to arrive at an Indicative Settlement Amount.

Uniform Settlement Factor and Amount

Further, a uniform consolidated Settlement factor of 0.55 in all cases wherein the entities had executed reversal trades, would be applicable while arriving at the Indicative Settlement Amounts.

The details of the respective Indicative Settlement Amounts under the Scheme, along with corresponding artificial volume, number of non-genuine trades and number of contracts resulting in creating of artificial volumes / non-genuine trades, in respect of entities who have executed trade reversals on stock options segment of BSE during the period from April 1, 2014 to September 30, 2015, are available on SEBI website and also on the BSE website.

Eligibility:

Under the Scheme, the entities who have executed trade reversals on the stock options segment of BSE during the period from April 1, 2014 to September 30, 2015 against whom any proceedings are pending are eligible to avail the one time settlement opportunity.

Validity of the Scheme:

Onetime settlement period shall commence on August 01, 2020 and end on October 31, 2020 (both days inclusive).

Settlement Application:

An entity desirous of making an application for one time settlement under the Scheme is requested to submit a Settlement application along with an application fee of Rs. 15,000 in case of individuals and Rs. 25,000 in case of body corporates in the specified format, available on the SEBI website and also on the BSE website.

Mode of Payment:

Remittance of settlement amount shall be done through online platform as available on the website of SEBI (https://siportal.sebi.gov.in/intermediary/AOPaymentGateway.html)

Result of non-compliance/non-availment:

It is clarified that after the expiry of the Scheme, entities who do not avail the one time settlement opportunity shall be liable for action as per section 15-I of the SEBI Act, 1992.

Application format:

The applicant shall use the following Format:

FORM

Application for settlement

(To be filed only after conclusion of investigation, inspection, inquiry or audit, as the case may be)

(For Office use only)

Date of receipt of the application:

Application Registration Number:

(Instructions: All particulars, including submission regarding details of loss caused to investors, profit made and proposed settlement amount must be filled, else application shall be returned. Put ‘NA’ only where NOT APPLICABLE.)

Before the Securities and Exchange Board of India

In the matter of …………………………..

1. Name/Trade name of the applicant/co-applicants:

(a) Registration no., if applicable :

(b) Date of Registration, if applicable :

(c) PAN/DIN/CIN number, as available:

(d) Paid-up capital of applicant:

(e) Aadhaar number or Aadhar enrolment number, if applicable:

2. If stock broker, name of the stock exchange:

3. If sub-broker/authorised person, name of stock broker with whom affiliated and name of the stock exchange:

4. Name of the segment (Cash/derivative etc.):

5. Form of organization: corporate body/ sole proprietorship / partnership / LLP/ financial institution (if listed co., details of listing):

6. Names of promoters/directors/proprietors/partners:

7. Key management personnel(s):

8. Address/correspondence address, contact no./fax no. and email (any changes in aforesaid details shall be communicated to the Board promptly):

9. Name and contact details (including e-mail) of the contact person (s):

10. Other registration(s) with the Board, if applicable:

(a) Trade name :

(b) Registration type :

(c) Registration no. :

11. Case(s) pending with the Board/SAT/Court (Pl. specify):

12. Case(s) pending under 11B/Adjudication/Enquiry/others (pl. specify):

13. Stage at which pending:

14. Interim order(s) in the pending proceedings (gist of the orders passed), if any:

15. Other actions pending with/concluded by the Board, if any (with their details):

(a) Against the applicant :

(b) Against its associates :

(c) Against its key management personnel(s) :

(d) Against its other promoters/directors:

(e) Other details, if any:

16. Date of show cause notice/summons/communication indicating probable cause of action, if any, against which the settlement is sought (PLEASE ENCLOSE COPIES)*:

17. Full and true disclosure of facts (including the loss caused, profit made, loss avoided, gross fees, brokerage, commissions, etc., in respect of the cause of action, with manner of calculation thereof):

[APPLICANT TO TAKE INTO ACCOUNT THE GUIDELINES PROVIDED IN SCHEDULE-II]

18. Specific charges alleged:

19. Terms of settlement proposed by the Applicant:-

(a) Monetary terms, with manner of calculation:-

(b) Non-monetary terms, including manner of calculation of terms of disgorgement due:-

20. Original documents to be enclosed:

(a) Undertakings and waivers (as per Format specified in Part C).

(b) Authority letter/Board resolution.

21. List of other enclosures:

(a) A copy of the notice to show cause/summons/communication/other notices indicating the probable cause of action, if any, against which the settlement is sought;

(b) Complete Annual Reports / other relevant financial details for the last three financial years and the quarterly audited financial results of the current year;

(c) A statement showing net worth of the applicant (only for those applicants who are required to comply with the networth requirements as specified by the Board or by the stock exchanges), gross annual income before tax, the amount of gross profit made/loss avoided, including the gross brokerage, fees, management/performance/transaction fee, carried interest, compensation, etc., in respect of the said default;

(d) Copy of PAN card/Aadhar/ DIN/CIN details;

(e) Complete Income-tax Returns of the applicant for the last three financial years;

(f) In case of a foreign body corporate applicant, include details relating to incorporation, place of business, registration details with any non-Indian financial sector regulatory authority.

(g) In case of a non-resident applicant, include details relating to passport and national identity document, if any.

(h) Any other relevant document (s)/submissions.

(Signature of the applicant) (Stamp and Seal of body corporate applicant)

Verification

 

 

I,   son/daughter/wife of (Name in block letters) Shri    being the applicant/authorised representative (in case of body corporate) of ……………. do hereby verify and affirm on oath that this application and the contents thereof are true to my knowledge and belief and as per the records and that I have not suppressed any material facts and shall keep the Board informed without delay, of any other relevant information that may come to my notice.

(Signature of the applicant)

Date:                                           ,  Place:

Web-link and Source of Information:

The text of Scheme is available at : https://www.sebi.gov.in/media/public-notices/jul-2020/public-notice-in-respect-of-sebi-settlement-scheme-2020_47150.html

The Author can be contacted at email id roopalcs2001p@gmail.com

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