Description

SEBI adjudication order imposing penalties on Sankat Mochan Holdings Private Limited for executing non-genuine reversal trades in illiquid stock options on BSE during April 2014 to September 2015, creating artificial volumes.

Summary

SEBI has issued an adjudication order (Order/JS/YK/2024-25/31788) against Sankat Mochan Holdings Private Limited (PAN: AAECS8505M) for engaging in non-genuine reversal trades in illiquid stock options on BSE during April 1, 2014 to September 30, 2015. The entity executed reversal trades where buy/sell positions were reversed with the same counterparty, creating artificial volumes and false appearance of trading. This violated SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Key Points

  • Investigation covered illiquid stock options trading on BSE from April 1, 2014 to September 30, 2015
  • Total 2,91,744 trades (81.41% of all stock options trades) involved reversal of positions during investigation period
  • Sankat Mochan Holdings Private Limited was one of 14,720 entities found executing non-genuine trades
  • Reversal trades involved entities reversing buy/sell positions in same contract with same counterparty
  • Trades lacked basic trading rationale and created false/misleading appearance of trading activity
  • Created artificial volumes in stock options contracts
  • Show Cause Notice issued on August 5, 2022 by erstwhile Adjudicating Officer
  • Case transferred to new Adjudicating Officer appointed on April 4, 2025

Regulatory Changes

No new regulatory changes introduced. This order enforces existing SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, specifically:

  • Regulation 3(a), (b), (c), (d) - Prohibition of fraudulent and unfair trade practices
  • Regulation 4(1) - Prohibition of manipulative, fraudulent and unfair trade practices
  • Regulation 4(2)(a) - Specific prohibitions related to dealings in securities

Compliance Requirements

  • Market participants must avoid executing reversal trades that lack genuine trading rationale
  • Trading in stock options must reflect actual investment intent and not create artificial volumes
  • Entities must ensure their trading activity does not create false or misleading appearance of trading
  • Trades must not be manipulative or deceptive in nature
  • All trades in illiquid stock options segment must have legitimate economic purpose

Important Dates

  • Investigation Period: April 1, 2014 to September 30, 2015
  • Show Cause Notice Issued: August 5, 2022
  • Adjudicating Officer Appointed: April 4, 2025
  • Order Number: Order/JS/YK/2024-25/31788

Impact Assessment

Market Impact: The order targets historical manipulation in the illiquid stock options segment of BSE, which constituted over 81% of trades during the investigation period. While the manipulation was widespread (involving 14,720 entities), the impact is limited to the stock options segment and occurred during 2014-2015.

Regulatory Impact: Demonstrates SEBI’s continued enforcement against market manipulation and artificial volume creation even for historical violations. Sends clear signal that reversal trades lacking genuine trading rationale will be pursued under PFUTP regulations.

Operational Impact: Minimal current operational impact as this relates to historical trading activity. However, serves as precedent for similar cases and reminder to market participants about prohibition on creating artificial volumes through reversal trades.

Entity-Specific Impact: Sankat Mochan Holdings Private Limited faces adjudication proceedings under Section 15HA of SEBI Act for violations during 2014-2015 period. Potential monetary penalties and other sanctions may apply based on final adjudication outcome.

Impact Justification

Adjudication order against a single entity for historical manipulation in illiquid stock options segment; limited broader market impact but demonstrates SEBI's enforcement against artificial volume creation