Insider trading probe: Sebi may seek help from foreign peers

Jun 08 2014, 15:52 IST
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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. 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.
SummarySebi may seek help from its peers in foreign countries, including Hong Kong, Singapore and Mauritius

office in tony central business district of Hong Kong and was founded by Indian-origin management graduate Barun Agarwal, came under Sebi scanner after its multi-asset hedge fund allegedly used insider information and took positions in shares of L&T Finance before a major announcement in the second week of March.

The hedge fund apparently booked profit in excess of Rs 20 crore from these trades alone.

Sebi has already widened its probe and is looking into other market activities of Factorial as also of at least 70 other entities, including foreign brokerages, hedge funds and FIIs, to bring to book those having violated the rules.

As the Factorial case involves insider dealings by a Hong Kong entity, regulators in the two countries may work together on this particular part of a now-widened probe.

Sebi Chairman U K Sinha has also been vocal in recent times about the need to more effectively enforce various securities laws and for punishing the culprits, including in the cases of cross-border violations.

The Factorial case is already being talked about one of the fastest probes by Sebi, as the incident took place on March 13 and irregularities came to the notice of regulators on the same day. A quick probe has already resulted in an interim order being passed on June 5.

Factorial had traded in derivative contracts of L&T Finance with Offshore Derivative Contracts (commonly known as P-Notes) through five different Foreign Institutional Investors in an "aberrant and suspicious" manner.

These five FIIs were Macquarie Bank, Goldman Sachs Singapore, Merrill Lynch CM Espana, Nomura Singapore and Citigroup Global Markets Mauritius Ltd.

A probe by the capital markets regulator found that Factorial was involved as potential investor in the market gauging exercise undertaken by Credit Suisse as 'Seller Broker' of L&T Finance for its Offer for Sale (OFS) in March.

A further probe is now underway against other entities and to find out those involved in flow of 'insider information' about shares sale price of L&T Finance.

"On examination of Bloomberg chat transcripts provided by CS, it is observed that on March 13, 2014, information like, 'likely to come in at a steep discount about 70 types' was being circulated amongst the members of Equity team of Credit Suisse," as per the Sebi order.

In this chat, '70' apparently referred to the price for sale of shares in the OFS, the floor price for which was actually later fixed at Rs 70 per share.

"It is noted that

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