SEBI- Settlement Scheme 2020

On 27

th July 2020, the Securities and Exchange Board of India introduced a Settlement Scheme 2020 for entities that executed trade reversals in the stock options segment of the Bombay Stock Exchange (i.e. BSE) for the specific period 1st April 2014 to 30th September 2015. The entity against whom the proceedings are initiated/ pending is eligible to avail the benefit of the scheme. The new scheme so introduced is being briefly explained in the current article.

Background for the introduction of Settlement Scheme 2020

An analysis of the stock options section of the Bombay Stock Exchange was undertaken. Based on the study, it was noticed that during the period 1

st April 2014 to 30th September 2015, by trade reversal in stock options, several entities constantly made a significant loss, whereas other entities constantly made a significant profit. It appeared that the trading activities of such entities were abnormal. Since the significant losses were reversed with the same counterparties on the same day or the next day. SEBI had initiated adjudication proceedings against several such entities. However, recently, the Settlement Scheme 2020 is introduced as a one-time option for such entities to free themselves from such adjudication proceedings. Noticeably, the Settlement Scheme providing the opportunity to settle the proceedings without having the stigma of penalty orders would undoubtedly help the affected entities to save their reputation from getting exposed.

Highlights of Settlement Scheme 2020

The features of the Settlement Scheme 2020 are summarized hereunder-

Eligibility condition for availing the scheme-

The Scheme is available for those entities who have performed the trade reversals on the stock options segment of BSE,
The above transaction should have been undertaken during the period 1st April 2014 to 30th September 2015, and
The proceeding should have been pending against the entities.

The time period for availing the benefit of the scheme-

The eligible entities can apply under the period from 1

st August 2020 to 31st October 2020.

Applicable fees for applying in the scheme-

The entity filing a settlement application under the scheme is required pay following fees-

Type of applicant	Applicable fees
Individuals	INR 15,000
Body corporates	INR 25,000

Suggestive settlement amount-

The board has considered following three objective parameters to arrive at suggestive settlement amount-

Artificial volume,
The number of non-genuine trades, and
The number of contracts resulting in the creation of artificial volume or non-genuine trades

Additionally, a consolidated settlement factor of 0.55 in all the cases (wherein, the entity has executed trade reversals) would apply to suggestive settlement amount.

Other important points

The entity is required to pay the settlement amount via an online platform, as available on the SEBI’s website.
The entities covered within the scheme, but, don’t avail the benefit of the settlement scheme 2020 shall be liable for action as per provisions of section 15-I of the Securities and Exchange Board of India Act, 1992.

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Frequently Asked Questions

Common questions about SEBI Settlement Scheme 2020: BSE Stock Options Overview.

The Settlement Scheme 2020 is a one-time opportunity introduced by the Securities and Exchange Board of India (SEBI) for entities that executed trade reversals in the stock options segment of the Bombay Stock Exchange (BSE) during the period from 1st April 2014 to 30th September 2015. The scheme allows these entities to settle pending adjudication proceedings against them without having the stigma of penalty orders.

SEBI introduced this scheme after an analysis of the stock options segment of the BSE revealed that during the specified period, several entities constantly made significant losses, while other entities constantly made significant profits. This was due to trade reversals in stock options, where significant losses were reversed with the same counterparties on the same day or the next day, indicating abnormal trading activities.

The Settlement Scheme 2020 is available to entities against whom adjudication proceedings have been initiated or are pending for executing trade reversals in the stock options segment of the BSE during the period from 1st April 2014 to 30th September 2015.

Eligible entities can apply under the Settlement Scheme 2020 from 1st August 2020 to 31st October 2020.

Individuals applying under the scheme are required to pay a fee of INR 15,000, while body corporates need to pay a fee of INR 25,000.

The suggestive settlement amount is based on three objective parameters: artificial volume, the number of non-genuine trades, and the number of contracts resulting in the creation of artificial volume or non-genuine trades. Additionally, a consolidated settlement factor of 0.55 is applied to the suggestive settlement amount in all cases involving trade reversals.

The entity is required to pay the settlement amount via an online platform available on the SEBI's website.

Entities covered within the scheme but who do not avail the benefit of the Settlement Scheme 2020 shall be liable for action as per the provisions of section 15-I of the Securities and Exchange Board of India Act, 1992.

The Settlement Scheme 2020 provides an opportunity for eligible entities to settle pending adjudication proceedings without having the stigma of penalty orders, thereby helping them save their reputation from getting exposed.

The analysis of the stock options segment of the BSE for the period from 1st April 2014 to 30th September 2015 was undertaken to identify instances of abnormal trading activities, specifically trade reversals in stock options, where significant losses were consistently reversed with the same counterparties, indicating potential irregularities.