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At least 70 entities including foreign brokerage firms, FIIs and others are under scanner for suspected insider trading activities and circulation of 'unpublished price sensitive information' for fraudulent and unfair trade practices.
The probe against these entities follows unearthing of a major insider trading case in shares of L&T Finance, in which capital markets regulator Sebi last night barred a Cayman Islands-based hedge fund, Factorial Master Fund, from Indian securities markets.
This fund, manged by Hong Kong based Factorial Capital Management, traded in derivative contracts of L&T Finance with Offshore Derivative Contracts (commonly known as P-Notes) through five different Foreign Institutional Investors in an "aberrant and suspicious" manner.
These five FIIs were Macquarie Bank, Goldman Sachs Singapore, Merrill Lynch CM Espana, Nomura Singapore and Citigroup Global Markets Mauritius Ltd.
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.
While Sebi has passed an interim order barring Factorial from Indian markets, a further probe is underway against other entities and to find out those involved in flow of 'insider information' about shares sale price of L&T Finance.
When contacted Credit Suisse spokesperson declined to comment, while a Factorial spokesperson said that allegations were "without merit" and a thorough probe will absolve it.
As per the Sebi order 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.
"In my view, this aspect needs thorough investigation so as to come to a definite conclusion," Sebi's Whole-Time Member Rajeev Kumar Agarwal said in his seven-page order.
Factorial built a short position of 5,309 derivative contracts of L&T Finance on March 13, which is equivalent to 2,12,36,000 shares or 84.15 per cent of market wide open interest built during the day in the scrip.
