SEBI bars 59 entities from trading for manipulating markets and evading taxes

For alleged manipulation of the stock exchange route for evading taxes, Securities and Exchange Board of India (SEBI) in a 37-page order bars 59 entities from trading, buying, selling or dealing in the securities markets, either directly or indirectly.

• This is the third such crackdown against alleged market manipulators looking to evade taxes or convert black money into ‘white’.
• 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.

Reasons for suspending 59 entities:

The reasons include,

• These companies being non-existent on their mentioned address.
• Misuse of preferential allotment.
• Weak fundamentals not supporting price rise.

 

• The regulator’s surveillance system detected a systemic tax evasion scheme. Low-value illiquid stocks in the options segment saw huge volumes, unsubstantiated by adequate open interest.
• A reference is also being made to the enforcement directorate, income tax department and financial intelligence unit, for investigating a probable money laundering scheme.
• The SEBI interim order said about trading in illiquid stock options contracts, leading to non-genuine and non-legitimate transactions.
• In Indian markets, close to 90 per cent of equity derivatives contracts available are not traded every day and are, therefore, illiquid.

Illiquid Stock or Assets:

• Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset.
• The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity.

Black/Dirty Money:

• As per the “White paper on Black Money”, black money can be generated in 2 ways. One, by manipulating the books of accounts of the taxpayer and second, it can be generated in the vulnerable sections of society.
• The money that is generated in the black market and which has partly or fully escaped assessment is termed as Black money.
• The circulation of black money is what is referred to as “parallel economy” or “unaccounted economy” or “unsanctioned economy” or “underground economy”.

Market manipulation:

• Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.

Examples of Market Manipulation:
Pools, Churning, Stock Bashing, Pump and dump, Runs, Ramping (the market), Lure and Squeeze.