Sebi may probe Credit Suisse in insider trading case

Jun 06 2014, 16:19 IST
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SEBI may probe whether Credit Suisse staff had revealed to Factorial that the L&T Finance deal would be done at a discount. SEBI may probe whether Credit Suisse staff had revealed to Factorial that the L&T Finance deal would be done at a discount.
SummarySebi to probe India unit of Credit Suisse over alleged leak of information on L&T Finance share sale.

said Factorial then aggressively built a big short position in L&T Finance derivatives on March 13 - accounting for 84.15 percent of all its outstanding futures and options positions - and covered its shorts through purchases in the heavily discounted share offering.

L&T Finance shares fell 7.2 percent to 79.15 rupees on March 13. At the close of the session L&T announced it would sell 55.5 million shares in L&T Finance at a floor price of 70 rupees per share.

SEBI said Factorial had netted a profit of around 200 million rupees ($3.37 million) in a transaction it called "aberrant and suspicious."

"It is highly unlikely that one who does not have any exposure in the scrip will take such an aggressive short position," SEBI said, "unless it had some definite information about fall in price of the scrip in near future." Scrip refers to the company's stock.

Factorial returned 2.04 percent in March, its highest monthly gain since Dec. 2012, according to a newsletter obtained by Reuters. Equities and the financial sector contributed the most to the gains in March, the letter showed.

The newsletter did not disclose the amount of money managed by Factorial.

SEBI added its examination of chat transcripts provided by Credit Suisse Securities (India) Private Ltd showed that on March 13, before the L&T announcement, brokers at the investment bank had exchanged messages such as "likely to come in at a steep discount about 70 types" amongst themselves.

But SEBI said it could not determine the extent to which such information had been shared, noting that the information on the pricing could have also come from others involved in the share sale process, such as other investors.

The drive against insider trading comes after SEBI last year received enhanced investigation powers from parliament, including the ability to monitor call records.

The previous government made stamping out insider trading a priority. Prime Minister Narendra Modi's new government has yet to comment on insider trading, but his landslide election win has attracted strong foreign buying and is set to trigger billions of dollars in share sales by companies.

SEBI's enforcement ability has often been stymied by lengthy appeals. Last year, it fined a unit of Reliance Industries Ltd 110 million rupees ($2 million) after a six year insider trading investigation, but the case is being appealed in securities tribunals.

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