Mumbai Suspicious trading activity ahead of so-called block deals, in which a large number of shares change hands in pre-negotiated transactions, has now become a part of the Securities and Exchange Board of India’s (SEBI) investigation.
“Mass buy orders are usually red flags before big deals. We have seen many cases where patterns are visible. In many cases, these buy orders do not come from a single buyer, but from multiple buyers who are buying smaller quantities in a coordinated manner through multiple accounts to avoid detection. The SEBI system has evolved to trace them,” said a person familiar with the regulator’s thinking, requesting anonymity. These accounts are known as mule accounts.
Emails sent to the regulator’s spokesperson did not elicit any response.
Following rising complaints, the regulator has stepped up investigations this year into front-running and other cases of market manipulation. According to the regulator’s annual report, the increased scrutiny is a departure from the previous year when SEBI took up just one case of front-running probe in FY2011, and only two were completed.
Examining trading patterns prior to at least five wholesale deals indicates that confidential details about orders may have been leaked, allowing some to profit from the information illegally. An examination of deals done in 2021 and 2022 shows that the stocks moved in an unusual way before the block deals. Suspicious trades were also often paid off on the same day.
Bulk deal is a mechanism through which promoters and institutional investors buy or sell shares on exchanges. These are pre-negotiated transactions where the buyer, seller and price are already determined. Ideally, they should occur only between the intended parties—the buyer and seller—but it appears that third parties often use the information to profit from price swings caused by large orders, a practice known as front-running. is called. In addition, since the transaction takes place through the regular order-matching mechanism of exchanges, other buyers can potentially interfere with the transaction if their bids are settled for a wholesale deal.
Mint analyzed five such deals of ICICI Lombard, SBI Cards, Sona BLW Forgings Ltd (Sona Comstar), IIFL Finance and Dabur, and in each of these trades, pre-ordered large volume buy orders before allowing retail investors. Openings were given in hours. do business.
For example, on 18 August, a Blackstone entity, Singapore VII Topco III Pte Ltd, sold 79.5 million shares in Sona Comstar to generate approximately 4,000 crores. However, third parties have already placed buy orders for 29.5 million shares in the pre-opening trading session.
As disclosed by Trendline, two brokerage firms – Marwari Shares and Finance Ltd and Mansi Shares and Stock Advisors – bought and sold shares in bulk on the same day. Besides, another party which was not involved in the block deal, Sanghvi Associates also bought and sold shares on the same day.
Rajkot-based Marwari Shares bought 4.1 million shares and sold 4.1 million shares. A relatively lesser-known firm based in Mumbai’s Borivali suburb, Manasi Shares bought 850,000 shares and sold 3.14 million shares on the same day. Sanghvi Associates also bought and sold 2.92 million shares for the same amount.
Mint reached out to Marwari Shares and Mansi Shares for comments on their trading, but did not get a response till press time. The mint could not trace the identity of Sanghvi Associates.
It is not possible to establish on the basis of public disclosure who placed the purchase orders in the pre-opening sessions.
“It appears that some participants are taking advantage of confidential information prior to bulk orders. This calls into question the integrity of the market around these large deals,” said the equity head of an institutional buyer, requesting anonymity. .
In another recent wholesale deal, in which CDC Group plc sold 13.5 million shares of IIFL Finance on 19 August, it was found that orders to buy a total of 20.9 million shares from third parties were created prior to the negotiated sale. . In the case of SBI Cards, on 17 March 2021, CA Rover Holdings, a unit of the Carlyle Group, sold 40 million shares, and buy orders of 7.1 million shares were already queued in the pre-opening session from parties not participating in the transaction. Were. A similar pattern was observed when 10 million shares of Dabur changed hands through a block deal on 19 February 2021.
Last year, foreign portfolio investors’ lobby bodies Asia Securities Industry and Financial Markets and Asia Trade Forum informed SEBI on eight other deals where similar trading pattern had occurred.
The investors alleged that the beneficiaries of these purchase orders were sophisticated and informed participants and requested a probe by SEBI. Mint has reviewed excerpts of the letter.
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