India's capital market
regulator has begun an investigation into allegations of front-running in the
recent sale of Axis BankBSE -0.52 % shares and a crash in the price of L&T
Finance ahead of an offer for sale.
The Securities and Exchange Board of India is examining data related to both the events to ascertain if securities laws were violated, said people familiar with the development. The government sold its 9 per cent stake in Axis Bank on March 21 through the Specified Undertaking of the Unit Trust of India (SUUTI) through bulk deals on BSE.
Of the 4.2-crore shares, about 1.5-crore are said
to have found their way to certain investors privy to the offer price. They
then offloaded the stock at a higher price to funds that had originally tied up
with merchant bankers to participate in the transaction, said the people cited
above. The practice of trading on a
stock on the basis of advance privileged information to take advantage of
pending orders — buying low and selling high — is known as front-running.
ET had reported on April 2 that some investors
had made a killing in the recent Axis Bank share sale. Acting on behalf of the
government, three leading merchant banks — JM Financial, Citigroup Global
Markets and JP Morgan — had lined up several domestic and foreign investors for
the proposed share sale.
While the price band was fixed at Rs 1,290 to Rs
1,357 apiece, sources told ET that prospective buyers were told to place their
orders between Rs 1,313 and Rs 1,317. The suspicion is that a handful of
investors got a whiff of the prices at which the orders would be placed and
instead sought shares at slightly higher price than Rs 1,317 as soon as the
market opened on March 21, beating others to the draw.
As a result, they were
able to buy 1.5-crore shares at an average price of Rs 1,315.19 before the
large funds could step in. The investors who got the shares then sold them to
clients of the three merchant bankers for Rs 1,320 to Rs 1,400, allegedly making
about Rs 100 crore in just a few hours.
The regulator is also
examining unusual price movements in L&T Finance's stock price ahead of an
offer for sale. On March 13, the L&T Finance stock was added to the futures
and options, or F&O, basket, well before the expiry of the ongoing series,
raising eyebrows among market participants.
"Sebi should investigate the complete flow
of events related to the drop in the L&T Finance stock price, beginning
from its inclusion in the F&O segment mid-month and the people involved in
shorting the stock as they knew the floor price of OFS beforehand," said
Gaurav Parikh, MD, Jeena Scriptech Alpha Advisors.
As of December 31, 2013, engineering and
construction major L&T held 139.98-crore shares of L&T Finance,
translating into an 81.50 per cent stake. The offer for sale took place at a
discount of nearly 17 per cent to the March 11 closing price and at an 11 per
cent discount to the March 12 closing price.
Source: ET : http://economictimes.indiatimes.com/markets/regulation/sebi-starts-investigation-into-axis-bank-share-sale-lt-finance-offer-for-sale/articleshow/33412351.cms
