SEBI restricts 59 entities from dealing in the securities markets

The Securities and Exchange board of India (SEBI), after analysis of the stock options segment of BSE for the period April 1, 2014 to March 31, 2015. It was observed that there are a set of entities who consistently made significant loss and others who consistently made significant profit by executing reversal trades in stock options on the BSE.

The SEBI used following parameters for the analysis:
* Identifying top entities making significant loss / profit by buying and selling equal units of stock options of a scrip.
* Identifying if trades happened at unreasonably low or high price / out of sync with the underlying price.
* Examining contribution of trades of the entities to total traded volume in the contract on those days.
* Identifying the quantum of such reversal transactions.

What is Reversal Transaction?
Reversal Transaction means if the stock options were sold first to an entity, they would be bought back in exact quantity from the same entity or vice- versa.

The entities who made a loss or profit of more than 5 crore in the stock option segment on account of reversal transactions were shortlisted. The loss-making entities were trading mainly in options on individual stocks which were thinly traded. The trades by these loss-making entities, in many cases, contributed to 70 per cent to 100 per cent of total traded volume for the contracts on those days.

On majority of occasions, the quantity of stock options bought and sold by the loss-making entities for a contract was identical, however, there was a significant difference in the selling value as compared to the buying value of the transactions resulting into significant loss to the loss-making entities.

These loss-making entities were mainly seen selling stock options without any corresponding offsetting position in the underlying scrip. In many cases, these options were sold at unreasonably low prices, even below the intrinsic value of the option and the options once sold low prices were subsequently bought back on the same day or on the next trading day at substantially higher prices when compared to the first sell price.

In certain instances, variations to the above pattern were seen, which included loss-making entities incurring loss by buying the options first instead of selling them. The loss-making entities as well as the profit-making entities were seen trading repeatedly in deep in-the-money options and deep out-of-the-money options on individual stocks, which were thinly traded.

SEBI bared 59 entities by passing of final order in the matter from buying, selling or dealing in the securities markets, either directly or indirectly, in any manner, till further directions. The entities includes names like Adarsh Credit Co Op Society Limited, Riddisiddhi Bullions Limited, Bharat Jayantilal Patel, Quest Partners , Gajanan Enterprises, Woodland Retails Private Limited, Raghav Commodities, etc.