Description

SEBI imposes penalty on Sandeep Agarwal HUF 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 Sandeep Agarwal HUF (PAN: AAVHS6180G) for executing non-genuine reversal trades in illiquid stock options on BSE during the investigation period from April 1, 2014 to September 30, 2015. The entity was found to be one of 14,720 entities that executed manipulative trades creating false or misleading appearance of trading through artificial volumes in stock options contracts. The proceedings were initiated for alleged violations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Key Points

  • SEBI investigated large-scale reversal of trades in Illiquid Stock Options (ISO) on BSE that created artificial volume
  • During April 1, 2014 to September 30, 2015, total 2,91,744 trades (81.41% of all trades) in stock options segment involved reversal trades
  • 14,720 entities were found executing non-genuine trades in BSE’s stock options segment
  • Sandeep Agarwal HUF was identified as one of the entities involved in executing reversal trades
  • Reversal trades involved entities reversing their buy/sell positions in a contract with subsequent sell/buy position with the same counterparty
  • Such trades lacked basic trading rationale and allegedly portrayed false or misleading appearance of trading
  • Adjudicating Officer appointed on April 4, 2025 under Section 15-I of SEBI Act, 1992
  • Show Cause Notice issued on July 30, 2021

Regulatory Changes

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

Compliance Requirements

  • Entities must ensure trades have genuine trading rationale and economic purpose
  • Reversal trades with same counterparty that create artificial volumes are prohibited
  • Trading activities must not create false or misleading appearance of trading in securities
  • Entities must comply with regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) of PFUTP Regulations

Important Dates

  • Investigation Period: April 1, 2014 to September 30, 2015
  • Show Cause Notice: July 30, 2021
  • Adjudicating Officer Appointment: April 4, 2025
  • Order Date: January 30, 2026

Impact Assessment

This adjudication order is part of a comprehensive enforcement action against market manipulation in the illiquid stock options segment. With 81.41% of trades in BSE’s stock options segment during the investigation period found to be reversal trades, this represents a systemic issue in the market. The action against 14,720 entities demonstrates SEBI’s commitment to maintaining market integrity and preventing artificial volume creation. The order establishes precedent for identifying and penalizing manipulative trading practices, particularly in illiquid derivative segments where such practices can significantly distort price discovery and market perception.

Impact Justification

Adjudication order against one entity among 14,720 entities involved in non-genuine stock options trading; establishes regulatory precedent for market manipulation cases but limited individual market impact