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

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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.