NSE slashes fine on non-genuine trades

The penalty structure for abnormal or non-genuine trades in the equity, commodity, currency cash and derivative segments has been reduced to 15 per cent from 100 per cent by stock exchanges.

In a circular issued on January 7, the NSE said, “The exchange shall levy a penalty of 15 per cent of the profit earned/loss incurred on the trading members for both profit- and loss-making abnormal/non-genuine transactions after following the due process and providing necessary opportunity to the trading member for clarification in the matter.”

The same was 100 per cent of the traded value, profit made, loss incurred as a result of the trades, according to an exchange circular dated December 13, 2018.

According to a Mumbai-based securities lawyer, such cases should be decided as per SEBI’s disgorgement mechanism; otherwise the reduced penalty structure could come as a concession.

“The exchange shall send necessary advice/caution letter to trading members and initiate appropriate disciplinary actions against the members concerned in case the activity is observed to be abnormal/non-genuine. Exchange may also levy a penalty of 100 per cent of the traded value/ profit made/ loss incurred as a result of the trades,” NSE said in its December 2018 circular.

Giving brief idea about what exchanges consider abnormal or non-genuine trades, a BSE guideline circular of February 2019, said, “Trading activity of clients concentrated in a specific security or contract, which is not traded frequently or trading with low volumes with client squaring up their position within a short span of time. Additionally, factors such as client’s earning significant profits or incurring losses on account of such transactions, and their consistent contribution to the daily average volumes of security, contract may also be looked at.”

In derivatives, exchanges have noticed that fresh positions are being created in contracts very close to their respective expiry or on the day of expiry. For instance, there have been numerous cases of low-priced options contracts witnessing a huge jump in prices close to their expiry, which the exchanges and SEBI have suspected for long to be abnormal trades.