SEBI Takes Strict Action: The Securities and Exchange Board of India (SEBI) has imposed a fine of Rs 20 lakh on four individuals for engaging in non-genuine trading activities. These traders were found to be involved in non-genuine transactions related to illiquid stock options on the Bombay Stock Exchange (BSE). The regulatory authority’s move came on Tuesday as a result of their actions.
In separate orders issued, SEBI has levied a penalty of Rs 5 lakh each on Manish Kumar Kanodia, Sita Devi Agarwal, Seema Charul Meshery, and Chandrani Dutta. The trading activities of these individuals involved a significant number of reversal trades, involving buying and selling in the marginally liquid stock options segment on BSE.
Such reversal trades created an artificial increase in trading volume on the exchange, leading to distorted trading trends. To address this concern, SEBI initiated an investigation into the trading activities of specific entities spanning the period between April 2014 and September 2015. It was during this period that the four fined individuals were identified as participants in these non-genuine trading practices.
Understanding SEBI’s Stance on Reversal Trades: SEBI emphasizes that reversal trades are not legitimate trading practices. This technique involves trading stocks with low liquidity in a manner that artificially inflates trading volume, thereby distorting the market trend. SEBI’s strictness in this regard arises from the lack of genuine trading volume associated with such activities. The actions of Kanodia, Agarwal, Meshery, and Dutta in participating in such trading practices resulted in a violation of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) Norms, prompting SEBI’s decisive response.
Cancellation of Registration as a Firm Action: In a separate development, SEBI issued an order cancelling the registration of Indo Thai Commodities. This action was taken due to the firm’s involvement in illegal paired contracts on the National Spot Exchange Limited (NSEL), an exchange that has since ceased operations. The firm’s engagement in such activities exposed clients to trading risks in products lacking regulatory approval.
SEBI highlights that this not only endangered its own reputation but also compromised the integrity of the regulatory environment. Consequently, SEBI has initiated legal proceedings against Indo Thai Commodities and other brokers involved. The regulatory body has suspended Indo Thai Commodities’ registration for a three-month period, subject to further court action potentially extending this duration.