IN RE: ILLIQUID STOCK OPTIONS Vs. STATE

JUDGEMENT

(1.) AS a part of ongoing surveillance, Securities and Exchange board of India ("SEBI") came across several instances/internal alerts wherein a set of entities were consistently making loss by their trading in options on individual stocks ("stock options") which are listed on the Bombay Stock Exchange Limited ("BSE").

(2.) Trading of these entities appeared abnormal because they were consistently seen making significant loss by their trades which were reversed with the same counterparties either on the same day or the next day. On analysis of the stock options segment of BSE for the period April 1, 2014 to March 31, 2015 (hereinafter referred to as "the examination period") it was observed that there were several entities who consistently made significant loss and others who consistently made significant profit by executing reversal trades in stock options on the BSE. Sebi undertook preliminary examination in the matter, inter alia, on the following parameters:

(3.) THE entities who made a loss or profit of more than Rs. 5 crore (hereinafter referred to as "loss -making entities"/"profit -making entities", respectively) in the stock option segment on account of reversal transactions were shortlisted.