In what is emerging as the biggest insider trading probe in India, watchdog Sebi may seek help from its peers in foreign countries, including Hong Kong, Singapore and Mauritius, as it widens investigations into suspected market activities of several overseas hedge funds.
Sebi has already barred a hedge fund, managed by Hong Kong-based Factorial Capital Management, from Indian markets through an interim order on 'insider trading' charges in L&T Finance shares.
The probe in this case has thrown open the possibility of large-scale fraudulent and unfair trade practices being adopted by many other foreign investors.
It is also suspected that some hedge funds -- operating through fabled tax havens like Cayman Islands, Isle of Man, Bermuda and British Virgin Islands -- may be routing Indian money back into the markets here to evade taxes, sources said.
While it is difficult to get information from these jurisdictions, many such funds are managed by entities registered in countries like Singapore, Mauritius and Hong Kong, and Sebi may seek information from their regulators through bilateral and multilateral MoUs.
Many hedge funds also operate through FIIs which have parent firms that are based in better-regulated markets like the US, UK, and other European countries.
It is suspected that these hedge funds are taking positions in Indian markets with participatory notes, issued through registered FIIs (Foreign Institutional Investors), to generate quick returns after getting access to 'unpublished price sensitive information (UPSI)'.
In the present case of Factorial, which has been charged of making unlawful gains after accessing UPSI about a proposed share sale by corporate giant Larsen & Toubro in its subsidiary L&T Finance Holdings, Sebi may approach Hong Kong's Securities & Futures Commission (SFC) for information.
Hong Kong-based Factorial on its part has said that the allegations against it were "without merit" and it was confident that a complete investigation would absolve it.
Queries mailed to the Hong Kong regulator about this case and its possible coordination with Sebi remained unanswered.
Both Sebi and SFC are signatories to a Multilateral Memorandum of Understanding (MMoU) for consultation, cooperation and exchange of information among various regulators through a platform provided by IOSCO (International Organisation of Securities Commissions).
The signatories of this MMoU also include Bermuda, British Virgin Islands, Cayman Islands and Isle of Man.
Besides, Sebi has also signed bilateral MoUs with many countries, including with regulators in the US, Mauritius, Singapore and China, to cooperate and exchange information for regulatory and enforcement purposes.
Factorial, which has its