SEBI Slaps ₹5 Lakh Penalty on Firm for Artificially Inflating Illiquid Stock Option Volumes

SEBI Slaps ₹5 Lakh Penalty on Firm for Artificially Inflating Illiquid Stock Option Volumes​

The Securities and Exchange Board of India (SEBI) has issued a significant adjudication order imposing a penalty on SIC Stocks Services Private Limited. The order addresses allegations of market manipulation stemming from the execution of non-genuine trades in illiquid stock options on the Bombay Stock Exchange (BSE).

SEBI's ruling confirms that the firm indulged in deceptive practices by creating a false and misleading appearance of trading volumes, thereby reaffirming the regulator's commitment to market integrity.

SEBI Probes Large-Scale Non-Genuine Trades in Stock Options​

The investigation initiated by SEBI focused on the stock options segment of the BSE for the period spanning April 01, 2014, to September 30, 2015. SEBI had observed a large-scale reversal of trades, concluding that such actions were leading to the creation of artificial volume.

SEBI's subsequent investigation found that a total of 2,91,744 trades out of all executed trades in the options segment were alleged to be non-genuine. These purported non-genuine transactions were found to have created artificial volume in the market.

SIC Stocks Services Private Limited was identified as one of the key entities involved in executing these alleged reversal trades. SEBI initiated proceedings against the firm for violating provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations).

Evidence Reveals Collusion in Illiquid Option Market​

The adjudication order established that the Noticee executed 12 non-genuine trades across two specific Stock Options contracts. These trades resulted in the creation of an artificial volume totaling 1,36,000 units.

SEBI's analysis highlighted that the nature of these reversal trades lacked any basic trading rationale and were not executed in the normal course of commerce. Such actions were deemed highly manipulative and deceptive.

For instance, in the contract 'HDIL14APR80.00CEW5', the Noticee executed a sell trade of 16,000 units followed by a buy trade for the same quantity on the same day, with the same counterparty. This was repeated with a significant price difference, pointing to a prior arrangement.

Regulatory experts noted that this pattern indicated a "meeting of minds" between the Noticee and its counterparty to execute the reversal trades at a pre-determined price. This lack of genuine market activity proved the non-genuine nature of the trades.

SEBI Confirms Violation and Imposes ₹5 Lakh Penalty​

Based on the extensive evidence and legal precedents, the Adjudicating Officer concluded that the Noticee had clearly indulged in manipulative and deceptive practices.

The ruling found that the trading behavior of the Noticee confirmed the trades were not normal, resulting in an appearance of artificial trading volumes. Consequently, the violation of Regulations 3(a), (b), (c), (d), 4(1), and 4(2)(a) of the PFUTP Regulations was established.

Considering the confirmed violation, the Adjudicating Officer imposed a penalty on SIC Stocks Services Private Limited. The penalty amount set by SEBI is ₹ 5,00,000/- (Rupees Five Lakhs only).

The order specifies that the penalized entity must remit the amount within 45 days of receiving the order through SEBI's designated online payment facility. Failure to comply could result in consequential actions, including recovery proceedings, as per the SEBI Act.