Description

SEBI adjudication order against Meghraj Agarwala for executing non-genuine reversal trades in illiquid stock options on BSE during April 2014 to September 2015, creating artificial volumes.

Summary

SEBI issued an adjudication order against Meghraj Agarwala (PAN: ACRPA9378E) for engaging in non-genuine reversal trades in illiquid stock options on BSE during the investigation period from April 1, 2014 to September 30, 2015. The investigation revealed that 81.41% of all trades (2,91,744 trades) in BSE’s stock options segment involved reversal of buy and sell positions, creating artificial volumes and false appearance of trading. Meghraj Agarwala was one of 14,720 entities found to have executed such manipulative trades.

Key Points

  • Show Cause Notice issued on August 12, 2022 under Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995
  • Investigation period: April 1, 2014 to September 30, 2015
  • 81.41% of all trades in BSE stock options segment during the period were reversal trades
  • Total of 2,91,744 non-genuine trades identified across 14,720 entities
  • Reversal trades involved entities reversing their buy/sell positions with the same counterparty
  • Trades lacked basic trading rationale and created artificial volumes
  • Adjudicating Officer appointed under Section 15-I of SEBI Act, 1992
  • Case transferred to new Adjudicating Officer on April 3, 2025

Regulatory Changes

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

Compliance Requirements

  • Market participants must ensure trades have genuine trading rationale
  • Reversal trades with same counterparties that create artificial volumes are prohibited
  • Entities must avoid trading practices that create false or misleading appearance of trading activity
  • Stock option trades must comply with PFUTP Regulations to prevent market manipulation

Important Dates

  • Investigation Period: April 1, 2014 to September 30, 2015
  • Show Cause Notice: August 12, 2022
  • Adjudicating Officer Appointment: April 3, 2025
  • Order Number: Order/JS/VC/2025-26/31962

Impact Assessment

Market Impact: This adjudication order is part of a large-scale enforcement action targeting manipulative trading in illiquid stock options. With over 14,720 entities involved, this represents a significant market integrity issue that distorted trading volumes and price discovery in BSE’s stock options segment.

Operational Impact: The order establishes clear regulatory precedent that reversal trades lacking economic rationale will be treated as manipulative and deceptive practices. Market participants engaged in options trading must ensure their trading strategies have genuine commercial purpose.

Legal Framework: Alleged violations include Regulations 3(a), (b), (c), (d), 4(1), and 4(2)(a) of PFUTP Regulations, covering fraudulent and unfair trade practices, manipulative devices, and creation of false or misleading appearances of trading.

Investor Protection: The enforcement action aims to protect market integrity by deterring artificial volume creation and ensuring genuine price discovery in derivative markets.

Impact Justification

Individual adjudication order for manipulative trading practices in illiquid stock options. Part of broader investigation involving 14,720 entities. Establishes regulatory precedent for treatment of reversal trades.