Sebi allows 59 entities to square off existing positions

New Delhi: After barring 59 entities for suspected tax evasion through misusing stock markets, Sebi on August 21 asked exchanges to allow these individual and companies square off their existing positions in the derivative markets.

However, the stock exchanges have been asked to ensure that these entities do not take fresh positions or increase their open positions, BSE and NSE said in separate circulars. Squaring off is a trading style used by investors/traders mostly in day trading, in which a trader buys or sells a particular quantity of an asset in the hope of earning a profit.

"Sebi...has directed the stock exchanges to enable squaring off existing open positions in the Futures and Options Segment, if any, for the 59 persons/entities... at the earliest," the bourses noted.

Securities and Exchange Board of India (Sebi), on August 20, barred 59 entities, including HNIs, from securities markets and also referred the case to the Income Tax Department for further investigations. The regulator found that there were several entities who consistently made significant loss and others who consistently made significant profit by executing reversal trades in stock options on the BSE.

The trading pattern of both loss-making and profit-making entities in this case fail to justify any of the normal strategies of hedging, speculation and arbitrage. While, more than 950 entities have already been banned from capital markets by the regulator for suspected tax evasion of at least Rs 5,000-6,000 crore, Sebi chairman U K Sinha had recently said.

Following the latest order, the number of barred entities in such matters has crossed 1,000. However, this was the first instance of action on tax-evaders using stock options.