In what could be the largest penalty proceedings by any regulator in India, SEBI has now revealed it will take action against 14,720 entities that had indulged in non-genuine trades or sham transactions in the equity derivatives segment. BusinessLine had reported on March 6 that SEBI was to initiate one of its largest penalty proceedings against nearly 15,000 entities, who indulged in creating artificial futures and options (F&O) volumes through the ‘reversal of trade’ route, which could bring windfall gains for the central government to the tune of several thousand crores.

SEBI’s action comes weeks after the Supreme Court upheld its order against one Rakhi Trading, that was involved in non-genuine derivative trades in illiquid stocks.

BusinessLine reported that the actual amount SEBI could collect in fines from all these people could be anywhere between ₹20,000 crore and ₹40,000 crore. Even if SEBI were to ignore the gains from artificial trade volumes, the offence would entail a minimum penalty of ₹5 lakh per entity, under Section 15 of the SEBI Act. This would fetch the regulator at least ₹750 crore.

“SEBI has decided to take appropriate action against all 14,720 entities in phases,” an order by SEBI’s whole-time member Madhabi Puri Buch said. “Any person found to be in violation of SEBI (PFUTP) Regulations, 2003, is liable to a penalty which shall not be less than ₹5 lakh but which may extend to ₹25 crore or three times the amount of profits made out of such practices, whichever is higher.”

SEBI said it had initiated a preliminary examination in the matter of Illiquid Stock Options for the period April 1, 2014 to March 31, 2015, during which it was noticed that a set of entities were repeatedly incurring significant losses by executing reversal trades in the Stock Options segment of the BSE, and another set of entities were repeatedly making significant profits by becoming their counter parties in orchestrated trades with the common objective of intended execution of the non-genuine trades.

On Thursday, SEBI said it had initiated adjudication proceedings against 567 entities in Phase 1, including 56 entities whom it barred from dealing in the markets for being involved in executing non-genuine trades.

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