Mumbai-based investor protection forum Indian Council of Investors (ICI) has complained to market regulator SEBI that Multi Commodity Exchange (MCX) was levying heavy penalties and fines to the tune of entire profits earned on trading involving illiquid options and reversal of such trades. The complaint, reviewed by BusinessLine, says that the move by MCX is not consistent with the view of SEBI. 

The complaint says that in similar matters involving illiquid options trading and reversal trades at the BSE, SEBI has levied far less penalty and even said that the matter was trivial. In fact, SEBI has also announced two amnesty schemes to settle these illiquid options and reversal trade matters with penalty ranging  between ₹1 lakh and ₹5 lakh, depending on the number of contracts traded. On the BSE, more than 14,700 entities were found to have indulged in illiquid options trading and trade reversal. 

‘No action from BSE’

As per SEBI, trades being reversed on the same day with the same parties with whom they were matched earlier are considered non-genuine trades and the BSE had witnessed lakhs of such trades on its platform. But while the BSE did not even consider any disciplinary action against these trades, the penalty being levied by MCX is harsh, the letter says.

In a circular, MCX has defined abnormal or non-genuine trades as those transactions executed by the same set of parties at abnormally high prices that have no correlation to the underlying spot or futures price of a contract. MCX is imposing penalties to the tune of profits made or losses adjusted by the parties, the letter says. The letter says that MCX penalties go against the spirit of SEBI view, wherein the regulatory board had approved consent schemes to settle the matter with small penalties. 

MCX did not respond to an e-mail query on the matter.