SEBI To Launch Settlement Scheme for Entities In High-Risk Stock Options

The Securities and Exchange Board of India is launching a settlement scheme for entities trading high-risk stock options on the Bombay Stock Exchange. This scheme is going to be subject to the provisions of the SEBI Act. 

In the context of the scheme mentioned, entities involved in such reversal trades between April 1, 2014, and Sept. 30, 2015, can settle pending proceedings with regulatory authorities.

SEBI classifies trades that are reversed on the same day with the same parties they were originally matched with as non-genuine, and these are termed reversal trades.

The reason SEBI considers these reversal trades as non-genuine is due to the manner in which they are conducted. Specifically, these trades involve executing transactions in illiquid or high-risk contracts. Illiquid contracts are financial instruments that have low trading activity or low demand in the market. Traders engaging in reversal trades purposely conduct these transactions in contracts with low liquidity.

The primary objective behind executing reversal trades in illiquid contracts is to artificially boost trading volume in the market. This practice is considered misleading because it creates a deceptive impression of heightened trading interest in a particular financial instrument. 

Entities opting for the scheme can swiftly settle ongoing legal proceedings, avoiding delays and associated legal complexities. This includes prolonged legal processes and expenses. Additionally, frequently asked questions about the scheme will be accessible on the SEBI and BSE websites starting March 11.

The scheme will be active from March 11 to May 10 (both days included), with the potential for an extension if approved by the Competent Authority.