SEBI extends settlement scheme

SEBI settlement scheme

The Securities and Exchange Board of India has extended the SEBI Settlement Scheme 2022, for companies involved in trading in illiquid stock options, until 21 January 2023. The scheme began on 22 August and was supposed to end on 21 November 2022.

“It has been observed that during the last few days, a large number of entities have shown interest in making use of the scheme,” the SEBI said in a statement. “Considering the interest of entities, the competent authority has extended the period till 21 January 2023.”

The SEBI Settlement Scheme was set up to provide a one-time settlement opportunity to those companies that had executed “reversal trade” in the BSE’s stock options segment between 1 April 2014 and 30 September 2015, and against whom adjudication proceedings had been initiated and were pending before a forum or authority.

A “reversal trade” is a stock market manoeuvre where a particular share is purchased in the name of one person and then sold back to the same person. As per media reports that cited internal sources at the SEBI, more than 7,000 firms used the scheme and paid the settlement amount until 21 November. The SEBI estimates that at least 14,000 firms have conducted “reversal trades”.

The present scheme itself is a revamp of the 2020 scheme, which faced severe criticism from the industry and lawmakers. A large number of organisations that could not make use of the scheme then appealed to the Securities Appellate Tribunal, which recently stated in one such case (Shubham Singhal v SEBI) that the scheme was a failure.

“The terms of settlement may have been troublesome, strict and unprofitable, and the scheme was issued at the height of the covid pandemic,” said the Securities Appellate Tribunal in the ruling, ordering the SEBI to consider releasing a new plan.