Sebi bars 22 brokers for evading tax on trades worth Rs8,100 crore

Capital market regulator Securities and Exchange Board of India (Sebi) has barred 22 brokers from engaging in trading activities over misusing the stock exchange system for tax evasion by executing 'reversal trade' worth over Rs8,100 crore to generate fictional losses.

These trading members would, however, continue to act as stock brokers for their existing clients in the cash segment. The will not be allowed to accept any new client during the period.

Sebi had, in its interim order passed in August 2015, barred 59 entities from the market for suspicious trades in the stock options segment. The regulator, however, found that these members continued to trade in the market through those members found to indulge in reversal trades (an arbitrage strategy in options trading that can be performed for a riskless profit when options are underpriced relative to the underlying stock) to artificially generate profit or a loss.

Sebi found that by engaging in reversal trades in stock options on behalf of debarred brokers, the trading members have reversed a major share of their turnover to create fictional profit or losses.

Prima facie examination revealed that exchange platform was abused to generate such artificial profit or loss by executing reversal trades to the tune of Rs8,100 crore.

According to Sebi, these trading members reversed significant proportion of the trades within minutes of entering the original trade. These trades resulted into total profit of Rs1,303 crore for one set of entities and Rs1,273 crore loss to another, Sebi added.