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.
- 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 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.