Unearthing a major insider trading case in shares of L&T Finance, Sebi today barred a Cayman Islands-based hedge fund from Indian securities markets, while the role of other entities including some employees of investment banking major Credit Suisse are also under scanner.
This hedge fund, Factorial Master Fund, traded in derivative contracts of L&T Finance with Offshore Derivative Contracts (commonly known as P-Notes) through five different FIIs (Foreign Institutional Investors) -- namely Macquarie Bank, Goldman Sachs Singapore, Merrill Lynch CM Espana, Nomura Singapore and Citigroup Global Markets Mauritius Ltd -- in an "aberrant and suspicious" manner.
Besides, 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.
The order does not affect L&T Finance or its promoters as such.
Finding Factorial prima facie guilty of having violated various regulations including those for prevention of insider trading and prevention of fraudulent and unfair trade practices, Sebi said the fund traded on the basis of its access to 'unpublished price sensitive information' (UPSI).
It, however, added that the entire channel for flow of 'unpublished price sensitive information' in this case needs to be further investigated.
"It may be mentioned in this regard that as per its submissions, investment banking team of Credit Suisse had contacted Factorial in relation to the OFS 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," Sebi order said.
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 this message from one CS employee to another in the Equity team was sent at 09:21:24 much before the formal announcement of OFS and the floor price at 21:22:00 on the same day.
"At this stage, however the channel of communication of the 'unpublished price sensitive information' is not ascertainable as various stakeholders such as seller, Seller Broker, their employees, potential investors, etc are involved in the whole process.
"In my view, this aspect needs thorough investigation so