Sebi scrutinizes block transactions

MUMBAI : Suspicious trading activity ahead of so-called block trades, in which a large number of shares are changed hands in a pre-agreed transaction, has now become part of a probe by the Securities and Exchange Commission and Indian Exchange (Sebi).

“Large buy orders before big deals are usually a red signal. We have observed several instances where patterns are visible. In many cases, these buy orders do not come from a single buyer but from multiple buyers simultaneously buying in smaller quantities through multiple accounts to avoid detection. A person familiar with the regulator’s thinking said, “Sebi’s systems have evolved to spot those accounts,” said a person familiar with the regulator’s thinking, asking. anonymous These accounts are called la accounts.

An email to a spokesperson for the regulator has yet to be answered.

The regulator has stepped up surveillance of other cases of market manipulation and manipulation this year after complaints increased. According to the regulator’s annual report, the increased surveillance is what sets it apart from the previous year when Sebi received only one pre-investigation case in fiscal year 21 and only two cases were completed, according to the annual report of the management agency.

Examination of trading patterns prior to at least five bulk transactions revealed confidential details of orders that may have been leaked, allowing some to illegally profit from the information. A close look at the transactions traded in 2021 and 2022 shows that the stocks moved in unusual ways prior to the trading block. Suspicious transactions are also often found to have been squared on the same day.

Bulk agreement is a mechanism through which promoters and institutional investors buy or sell shares on exchanges. These are deals negotiated before a buyer, seller, and price have been established. Ideally, they should occur only between the intended parties – the buyer and the seller – but it seems likely that third parties often use the information to profit from the price changes caused by large orders, a method called run first. Furthermore, since the transaction occurs through the normal order matching mechanism of the exchanges, other buyers may be able to interfere in the transaction if their bid is the same as the fixed bid for the transaction. bulk transactions.

Mint analyzed five such transactions by ICICI Lombard, SBI Cards, Sona BLW Forgings Ltd (Sona Comstar), IIFL Finance and Dabur, and in each of these transactions, large numbers of buy orders were placed before opening hours. before retail investors are allowed to trade.

For example, on August 18, a Blackstone company, Singapore VII Topco III Pte Ltd, sold 79.5 million shares of Sona Comstar to raise capital. 4,000 crore. However, third parties lined up to buy up to 29.5 million shares in pre-opening trading.

As revealed on Trendlyne, two brokerage firms – Marwadi Shares and Finance Ltd and Mansi Shares and Stock Advisors – bought and sold a large number of shares on the same day. In addition, another party not related to the sale of this lot, Sanghvi Associates, also traded shares on the same day.

Rajkot-based Marwadi Shares bought 4.1 million shares and sold 4.1 million shares. A relatively unknown company located in the Mumbai suburb of Borivali, Mansi Shares, bought 850,000 shares and sold 3.14 million shares on the same day. Sanghvi Associates also bought and sold the same number of shares, 2.92 million shares.

The Mint reached out to Marwadi Shares and Mansi Shares for comments on their transaction but received no response as of press time. The Mint was unable to identify Sanghvi Associates.

It is not possible to determine who placed a buy order in the pre-opening session based on publicly available information.

“It seems that some participants are taking advantage of confidential information ahead of bulk orders. This raises questions about the integrity of the market around these large transactions,” said the head of shares of an institutional buyer, requesting anonymity.

In another recent mass sale, in which CDC Group Plc sold off 13.5 million shares of IIFL Finance on August 19, it was found that buy orders totaling 20.9 million shares from third parties that were lined up prior to the agreed-upon sale. In the case of SBI Cards, on March 17, 2021, CA Rover Holdings, a Carlyle group company, sold 40 million shares and 7.1 million stock orders were lined up during the trading session. before the sale from parties not involved in the transaction. Similar patterns were seen when 10 million shares of Dabur were changed hands through block transactions on February 19, 2021.

Last year, foreign investors’ lobbying agencies Asian Securities and Financial Markets Industry and the Asia Trade Forum wrote to Sebi highlighting eight other transactions in which models Similar transaction occurred.

Investors allege that the beneficiaries of these buy orders are sophisticated and informed participants and ask Sebi to probe. The Mint reviewed excerpts of the letter.

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