Description

SEBI imposes penalties on Makwana Dhiru S. HUF for executing non-genuine reversal trades in illiquid stock options on BSE during April 2014 to September 2015, violating PFUTP Regulations.

Summary

SEBI issued Adjudication Order No. Order/JS/DP/2025-26/31973 against Makwana Dhiru S. HUF (PAN: AALHM4560N) for executing non-genuine reversal trades in illiquid stock options on BSE during the period April 1, 2014 to September 30, 2015. The entity was found to be one of 14,720 entities involved in creating artificial volume through reversal trades that constituted 81.41% of all trades in BSE’s stock options segment during the investigation period. The trading activity violated SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Key Points

  • Investigation covered the period from April 1, 2014 to September 30, 2015
  • Total of 2,91,744 reversal trades identified, representing 81.41% of all trades in BSE stock options segment
  • 14,720 entities found involved in non-genuine trading activities
  • Makwana Dhiru S. HUF executed reversal trades where buy/sell positions were reversed with same counterparty
  • Trades lacked basic trading rationale and created false or misleading appearance of trading
  • Alleged violations of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations
  • Show Cause Notice issued on December 21, 2021
  • Adjudicating Officer appointed on April 04, 2025 under Section 15-I of SEBI Act, 1992

Regulatory Changes

No new regulatory changes introduced. This order enforces existing provisions under SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, specifically targeting manipulative and deceptive trading practices in illiquid stock options.

Compliance Requirements

  • Market participants must ensure trades have genuine trading rationale and economic purpose
  • Avoid reversal trades with same counterparties that create artificial volume
  • Refrain from trading practices that create false or misleading appearance of trading activity
  • Comply with PFUTP Regulations prohibiting fraudulent, deceptive and manipulative trading practices
  • Trading members and participants must monitor for non-genuine trade patterns in illiquid instruments

Important Dates

  • Investigation Period: April 1, 2014 to September 30, 2015
  • Show Cause Notice Issued: December 21, 2021
  • Adjudicating Officer Appointed: April 04, 2025
  • Order Date: January 19, 2026

Impact Assessment

Market Impact: Low - This is a retrospective enforcement action against a single HUF entity for violations that occurred over 10 years ago. The order is part of a broader cleanup exercise targeting 14,720 entities involved in similar practices.

Operational Impact: Low - No immediate operational changes required for current market participants. Serves as a deterrent example of SEBI’s continued enforcement against historical market manipulation cases.

Regulatory Significance: Medium - Demonstrates SEBI’s commitment to pursuing enforcement actions even years after violations, particularly in cases involving systematic market manipulation through artificial volume creation in illiquid segments. The scale of the investigation (involving over 14,000 entities and 81% of trades) highlights the severity of the issue in the illiquid stock options segment during that period.

Impact Justification

Individual adjudication order against a single HUF entity for historical violations during 2014-2015. Part of a larger investigation involving 14,720 entities. Limited market-wide impact as it addresses past manipulative practices in illiquid options segment.