Several stock brokers are planning to challenge the Amnesty Scheme 02 of market regulator SEBI. The scheme, which closes on November 21, was made available by SEBI in August as a one-time settlement opportunity to nearly 15,000 entities accused of the same offence, which is unfair trading in illiquid stock options on the BSE.

Brokers told businessline that the scheme lacks legal sanctity since it defies the principles of natural justice by excluding them from the amnesty being extended to their clients. Moreover, the scheme is only limited to one exchange, BSE, while it leaves out other exchanges and their clients and brokers. SEBI intended to collect a minimum of ₹750 crore from the scheme if all the entities settled by paying a fine, which is based on the count of offences committed. The maximum collection from it is anticipated to be worth several thousands of crore.

Racket bust

A major racket was busted by SEBI in 2015 when its former member Rajeev Kumar Agarwal passed an order against 59 entities for trading in illiquid options of stocks on the BSE. Then, certain entities consistently made losses in trading, executed among themselves and even reversed some of them. In 2018, Madhabi Puri Buch, SEBI’s then whole-time member followed it up and promised action against entities for sham transactions.

Analysis showed the entities generated over 70 per cent of their volumes in illiquid options in a year. Agarwal had investigated entities with over ₹5 crore in loss or profit, responsible for the non-genuine trades. In the same matter, in 2018, Buch further identified 14,720 entities. As many as 81.41 per cent of the trades executed in the segment were constituted to fall in the purview of unfair trades and the proceedings and entities were imposed with penalties under Section 15HA of SEBI Act, 1992.

SEBI also conducted investigations against entities who indulged in sham transactions on the NSE but they have not been covered under the amnesty schemes. A commodity exchange has started imposing fines on its clients for similar trades but no amnesty is available to them. In the BSE matter, while SEBI has issued show-cause notices to clients as well as their brokers, the amnesty is only available for clients. Experts said the nature of alleged trade violations on BSE and NSE and other exchanges was the same since both were done to avoid taxes and adjust profit and loss.

‘Lack of planning’

“The amnesty scheme is shoddy and it exposes lack of proper planning and coordination among SEBI’s various departments. Especially when it is settled in law that a broker’s liability in respect of his/her clients trade is proportionate. Simply put, brokers and clients are equal if found violating norms. So, if there is an amnesty scheme for clients, it is natural that SEBI extends the same to brokers. In any case, intermediaries have been found to be a soft target and a low hanging fruit for SEBI. More shocking is that the consent scheme only covers BSE trades and does not cover exactly similar reversal trades in illiquid options on NSE. On the same lines, SEBI allowing exchanges like MCX to levy huge penalties on same trades, which SEBI finds to be mere technical violation, is completely arbitrary and needs urgent attention of SEBI,” said Deepak Sanchety, ex-Head of Surveillance, SEBI.

SEBI did not respond to an e-mail query on the issue.

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