SEBI to Introduce Fourth Settlement Scheme to Resolve Illiquid Stock Options Cases — September 24, 2026

The Securities and Exchange Board of India (SEBI) is set to roll out a fourth settlement scheme targeting entities entangled in the long-running illiquid stock options (ISO) case on the BSE.

The decision is aimed at clearing the remaining backlog of proceedings that continue to clog the regulatory apparatus and judicial benches, including cases pending before the Securities Appellate Tribunal (SAT) and SEBI adjudicating officers.

Genesis of the Dispute

The regulatory action stems from an extensive market surveillance investigation conducted by SEBI into trading activities in the BSE stock options segment between April 1, 2014, and September 30, 2015. The regulator found that out of 21,652 entities trading on the exchange's options counter during that period, as many as 14,720 entities were involved in non-genuine transactions.

These trades were characterized by rapid reversals—buying and selling the same options contract with identical counterparties on the same day or the following day at substantial price differences. The transactions generated artificial market volumes and enabled entities to register deliberate, non-genuine trading losses or profits, violating the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP).

History of Earlier Settlement Schemes

To mitigate widespread litigation and offer market participants a predictable exit route, SEBI has previously introduced three settlement schemes under Regulation 26 of the SEBI (Settlement Proceedings) Regulations, 2018:

• First Settlement Scheme (2020): Around 1,018 entities availed themselves of the initial one-time settlement opportunity to clear pending charges.
• Settlement Scheme 2022: Following observations by the SAT recommending an attractive, accessible resolution mechanism, SEBI opened a comprehensive settlement window between August 2022 and January 2023. A total of 10,980 entities settled their cases under this scheme, paying settlement charges that ranged from ₹1 lakh to ₹42 lakh.
• ISO Settlement Scheme 2024: Kept open between March 11, 2024, and June 10, 2024, this third scheme resolved enforcement actions against 768 entities, the majority of whom paid charges between ₹1.2 lakh and ₹2.4 lakh.

Rationale Behind the Fourth Scheme

Despite the substantial participation across the earlier three windows, hundreds of matters remain unresolved. A notable volume of cases is still pending before the SAT on appeal, while several others remain stuck at various phases of adjudication inquiries or certificate recovery proceedings.

Continuing full-scale legal battles in these cases requires significant institutional resources from both the regulator and the judicial machinery for matters that are over a decade old. By introducing a fourth scheme, SEBI seeks to offer an expeditious compromise that amortizes legal costs for noticees while recovering settlement dues for the public exchequer.

Broader Regulatory Context

The upcoming scheme aligns with SEBI’s broader enforcement push to simplify and expedite dispute resolutions across the Indian capital markets. The regulator has also been weighing faster settlement mechanisms for low-value infractions—particularly those under ₹10 lakh—and streamlining procedures for matters already escalated to appellate forums.

Once notified, eligible noticees with pending proceedings will be permitted to apply through SEBI’s centralized online portal, pay the designated settlement amounts based on contract parameters, and obtain formal closure without admitting or denying guilt. Entities that choose not to opt for the settlement window will face regular enforcement proceedings under Section 15HA and Section 15-I of the SEBI Act, which carry monetary penalties and potential recovery actions.

Tags: SEBI BSE Securities Appellate Tribunal Capital Markets Derivatives