FACTS OF THE CASE IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), observed large scale reversal of trades in the Illiquid Stock Options (hereinafter referred to as “ISO”) segment of Bombay Stock Exchange (hereinafter referred to as “BSE”) leading to creation of artificial volume. Reversal trades are those trades in which an entity reverse its buy or sell positions in a contract with subsequent sell or buy position with the same counter party. The said reversal trades are alleged to be non-genuine trades as they lack basic trading rationale and allegedly lead to false or misleading appearance of trading in terms of generation of artificial volume. In view of the same, such reversal trades are alleged to be deceptive and manipulative. On account of the same, SEBI conducted an investigation into the trading activities of certain entities in Illiquid Stock Options at BSE for the period April 1, 2014 to September 30, 2015 (hereinafter referred to as "Investigation Period/IP")
2. Pursuant to investigation by SEBI, it was observed that during IP, total 2,91,744 trades comprising substantial 81.38% of all the trades executed in Stock Options of BSE were trades which involved reversal of buy and sell positions by the clients and counterparties in a contract. The investigation revealed that 14,720 entities were involved in executing non-genuine trades in BSE’s Stock Options segment during the investigation period. The proceedings initiated against a first set of 59 entities, were disposed off vide final Order dated April 05, 2018, without any further directions, observing that the Adjudicating Officer shall continue the proceedings in accordance with the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the “SEBI Act”) and SEBI (Procedure for Holding and Imposing Penalties) Rules, 1995 (hereinafter referred to as the “Adjudication Rules”) and pass appropriate order on merits.
3. In the meantime, the Hon’ble Securities Appellate Tribunal (SAT), vide its Order dated October 14, 2019, in the case of R. S. Ispat Ltd Vs SEBI, inter alia observed that “SEBI may consider holding a Lok Adalat or adopting any other alternative dispute resolution process with regard to the Illiquid Stock Options”.
4. Accordingly, a Settlement Scheme was framed under the SEBI (Settlement Proceedings) Regulations, 2018, which provided a one-time opportunity for settlement of proceedings in the Illiquid Stock Options matters. The said scheme was kept open from August 01, 2020 till December 31, 2020. Finally, adjudication proceedings were initiated against those entities who did not avail the opportunity of settlement. It was observed that Ms. Shweta Thakkar (hereinafter referred to as the “Noticee”) was one of the various entities which indulged in execution of reversal trades in Stock Options segment of BSE during the Investigation Period. As the Noticee did not avail the opportunity for settlement, SEBI initiated adjudication proceedings against the Noticee for violation of the provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”).
5. It was alleged that the Noticee was one of the entities that indulged in creating artificial volume of 3,36,000 units through 2 non-genuine trades in 1 Stock Option contract. The aforesaid reversal trade occurred through the dealings of the Noticee in one contract viz. “LNTF15JUN60.00CEW1” during the investigation period is illustrated as follows:
a. During the investigation period, 2 trades for 3,36,000 units were executed by the Noticee in the said contract on June 01, 2015.
b. While dealing in the said contract on June 01, 2015, at 14:19:44 hours, the Noticee entered into a buy trade with the counterparty Anurodh Infrastructure Limited for 1,68,000 units at Rs. 2.9/- per unit. The Noticee entered into 1 sell trade with the same counterparty at 14:24:26 hours for 1,68,000 units at Rs. 4.7/- per unit.
c. The Noticee’s 2 trades while dealing in the abovementioned contract during the investigation period generated artificial volume of 3,36,000 units, which made up 45.65% of total market volume in the said contract during this period.
6. In view of the foregoing, it was alleged that the Noticee had entered into a reversal trade in BSE ISO and this reversal trade was non-genuine in nature. Such trade created false and misleading appearance of trading leading to artificial volume in Stock Options and therefore were manipulative and deceptive in nature. The Noticee was alleged to have violated regulations 3(a), (b), (c) and (d), 4(1), 4(2)(a) of PFUTP Regulations.
7. During the course of the hearing in a group of appeals, the Hon’ble SAT, vide its Order dated May 13, 2022, inter alia held that “SEBI should reconsider and seriously give a thought in coming out with a fresh Scheme under Clause 26 of the Settlement Regulations, 2018. Such scheme can be a onetime scheme for this class of person. The terms of settlement should be attractive so that it could attract the noticees/entities to come forward and settle the matter which will ameliorate the harassment of penalty proceedings to the noticees and at the same time would help to clear the backlog of these pending matters before various AOs”.
8. Accordingly, SEBI introduced a Settlement Scheme i.e. SEBI Settlement Scheme, 2022 (hereinafter referred to as “Settlement Scheme 2022”) in terms of Regulation 26 of the SEBI (Settlement Proceedings) Regulations, 2018 (hereinafter referred to as “Settlement Regulations”). The Scheme provided a onetime opportunity to the entities against whom proceedings had been initiated and appeals against the said proceedings are pending before any forum or authority. The AO proceedings initiated against the Noticee were stalled owing to Scheme 2022.
9. I note that Noticee did not avail settlement under the Settlement Scheme in 2020 or 2022 and therefore, Adjudication proceedings have been revived against the Noticee.
The chronology of facts regarding the adjudication proceedings is stated below:
|
Date |
Remark |
|
September 27, 2021 |
Appointment of Shri Sandeep P Deore as the Adjudicating Officer. |
|
December 28, 2021 |
SCN dated December 22, 2021 was delivered through SPAD. |
|
August 03, 2022 |
SEBI, vide a letter dated August 03, 2022 informed the Noticee about Settlement Scheme 2022. |
|
April 24, 2023 |
The undersigned was appointed as the Adjudicating Officer in the captioned matter. |
|
May 17, 2023 |
Hearing Notice was issued in the captioned matter for the hearing scheduled on May 31, 2023. |
|
May 22, 2023 |
Physical delivery of the Hearing Notice. |
|
May 31, 2023 |
The Noticee did not appear for the hearing scheduled on May 31, 2023. |
|
June 06, 2023 |
The Noticee was provided the final opportunity of being heard vide Hearing notice dated June 06, 2023 for the hearing scheduled on June 20, 2023. |
|
June 12, 2023 |
Physical delivery of the Hearing Notice. |
|
June 20, 2023 |
The Noticee did not appear for the hearing scheduled on June 20, 2023. |
CONSIDERATION OF ISSUES AND EVIDENCE
I have carefully perused the charges levelled against the Noticee in the SCN, its reply and the material / documents available on record. In the instant matter, the following issues arise for consideration and determination:-
I. Whether the Noticee has violated regulations 3(a), (b), (c), (d), 4(1), 4(2)(a) of PFUTP Regulations?
II. Do the violations, if any, on the part of the Noticee attract monetary penalty under section 15HA of SEBI Act?
III. If so, what would be the quantum of monetary penalty that can be imposed on the Noticee after taking into consideration the factors mentioned in section 15J of the SEBI Act?
ORDER
In view of the above, after considering all the facts and circumstances of the case and the factors mentioned in the provisions of section 15-J of the SEBI Act, I, in exercise of the powers conferred upon me under section 15-I of the SEBI Act read with Rule 5 of the Adjudication Rules, conclude that the violations alleged against the Noticee stands established in terms of the provisions of the SEBI Act. Hence, in view of the charges established under the provisions of the SEBI Act, I, hereby impose monetary penalty under section 15HA of SEBI Act of ` 5,00,000/- (Rupees Five Lakh only) for violation of regulations 3(a), (b), (c) and (d), 4(1), 4(2)(a) of PFUTP Regulations.