Description

SEBI adjudication order imposing penalty on Makwana Bharat S. HUF for executing non-genuine reversal trades in illiquid stock options on BSE during April 2014 to September 2015.

Summary

SEBI has issued an adjudication order against Makwana Bharat S. HUF (PAN: AALHM4561P) under Section 15-I of the SEBI Act, 1992 for alleged violations of PFUTP Regulations. The entity is accused of executing non-genuine reversal trades in illiquid stock options on BSE during the investigation period from April 1, 2014 to September 30, 2015. The trades allegedly created false or misleading appearance of trading through artificial volume creation.

Key Points

  • Adjudication Order No. Order/JS/DP/2025-26/31970 issued under Section 15-I of SEBI Act, 1992
  • Investigation covered the period April 1, 2014 to September 30, 2015
  • During the investigation period, 2,91,744 trades (81.41% of all stock options trades on BSE) were reversal trades
  • Total 14,720 entities were found involved in non-genuine trades in BSE stock options segment
  • Makwana Bharat S. HUF was one of the entities executing reversal trades
  • Reversal trades involved entities reversing their buy/sell positions in a contract with subsequent sell/buy positions with the same counterparty
  • Such trades lacked basic trading rationale and portrayed false or misleading appearance

Regulatory Changes

No new regulatory changes introduced. This is an enforcement action under existing SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Compliance Requirements

  • Entities trading in stock options must ensure trades have genuine economic rationale
  • Reversal of positions with the same counterparty that creates artificial volume is prohibited
  • Market participants must avoid trades that create false or misleading appearance of trading activity
  • Compliance with Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations is mandatory

Important Dates

  • Investigation Period: April 1, 2014 to September 30, 2015
  • Show Cause Notice Date: December 30, 2021
  • AO Appointment Date: April 03, 2025
  • Order Number: Order/JS/DP/2025-26/31970

Impact Assessment

Market Impact: Low - This is an individual enforcement action against a single HUF entity for historical violations from 2014-2015. No immediate market-wide implications.

Regulatory Significance: Medium - Part of SEBI’s broader crackdown on manipulation in illiquid stock options segment involving 14,720 entities. Demonstrates continued enforcement against artificial volume creation and reversal trading practices.

Investor Impact: Minimal - Relates to derivatives trading practices and does not directly affect equity investors or current market operations.

Compliance Impact: The order reinforces the need for genuine trading rationale and warns against creating artificial volumes through reversal trades with same counterparties.

Impact Justification

Individual adjudication order against single HUF entity for past violations (2014-2015). Limited market-wide impact but demonstrates SEBI enforcement against manipulative trading practices.