SEBI Imposes Fine on Firm for Fraudulent Trading and Artificial Volume in Illiquid Stock Options at BSE

SEBI Imposes Fine on Firm for Fraudulent Trading and Artificial Volume in Illiquid Stock Options at BSE​

The Securities and Exchange Board of India (SEBI) has concluded adjudication proceedings against Excel Technovation Pvt Ltd, imposing a substantial monetary penalty for engaging in fraudulent and unfair trade practices in the illiquid stock options segment of the Bombay Stock Exchange (BSE). The decision highlights SEBI's commitment to maintaining market integrity and identifying manipulative activities that distort genuine trading volume.

The Adjudicating Officer found Excel Technovation Pvt Ltd guilty of violations related to non-genuine trades, which created a false or misleading appearance in the stock options market during the period spanning April 01, 2014 to September 30, 2015.

The Allegations of Manipulative Trading​

The investigation conducted by SEBI revealed that Excel Technovation Pvt Ltd was one of several entities involved in executing reversal trades within the BSE stock options segment during the specified period (IP). These transactions were deemed non-genuine and manipulative.

A total of 46 such non-genuine trades, executed across 23 different Stock Options contracts, resulted in the creation of an artificial volume totaling 12,92,000 units. The company was accused of violating Regulations 3(a), (b), (c), (d), and Regulation 4(1) & 4(2)(a) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

Establishing Non-Genuine Trades in Stock Options​

The Adjudicating Officer's detailed review focused on demonstrating that these transactions lacked a commercial basis and were intentionally manipulative. Reversal trades are defined as instances where an entity reverses its buy or sell position within the same trading day with a counterparty.

Evidence from the trade log confirmed that Excel Technovation Pvt Ltd executed these reversal trades with a specific counterparty across multiple contracts. For instance, in the contract 'EXID15APR165.00CEW4', the firm bought 26,000 units at Rs 9.2 per unit and subsequently sold them for 26,000 units at Rs 19.9 per unit on the same day.

The findings underscored that such synchronized transactions with a significant price differential indicated a pre-determined outcome between the counterparties. The Officer relied on legal precedent from the Hon'ble Supreme Court regarding inferring manipulative intent from the totality of surrounding circumstances, rather than relying solely on anonymous electronic trading records.

SEBI’s Findings and Final Penalty​

The investigation established that the trading behavior exhibited by Excel Technovation Pvt Ltd was not indicative of genuine market activity. The non-genuine trades created an appearance of artificial volume in the respective contracts, leading to a violation of the PFUTP Regulations.

While the adjudicating officer noted that no quantifiable disproportionate gain or loss could be determined from the available material, the nature and scope of the default were sufficient grounds for imposing a penalty under Section 15HA of the SEBI Act.

In view of these findings, the Adjudicating Officer imposed a monetary penalty of Rs 5,00,000/- (Rupees Five Lakhs only) on Excel Technovation Pvt Ltd (PAN: AAACE3703B). The firm was found guilty of violating Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of the PFUTP Regulations.

The SEBI noted that this proceeding is necessary not only to determine the violation but also to crystallize the amount payable, enabling SEBI to assert its claim in related liquidation proceedings. The Adjudicating Officer stated that the penalty was commensurate with the violation committed by the Noticee.