Sebi Seeks Support From Sector in Factorial Probe

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SEBIIndiaCSR News Network

MUMBAI: In its probe against foreign hedge fund Factorial in an insider trading case, regulator Sebi has sought help from its US counterpart SEC as trading terminal provider Bloomberg has refused to share information.

“Investigation in the present case involves cross-border investigation and since Bloomberg terminal having its headquarter in New York City, USA has refused to share information required for the present case, Sebi has sought assistance of US Securities and Exchange Commission in the matter” as per a SAT order passed today.

It was submitted before the Securities Appellate Tribunal (SAT) by the Sebi counsel that it might take at least 4-5 months for completing the investigation.

The Tribunal, which was hearing Factorial’s appeal against Sebi, today asked the regulator to complete its probe within two months against the Hong Kong-based hedge fund, which has been barred from markets in a major insider trading case involving shares of L&T Finance.

Trainign on CSR in India by IndiaCSRSebi, which informed the Tribunal that its probe was at a ‘crucial stage’ has also been asked to issue a show-cause notice and pass an appropriate order within further one month thereafter if the findings of the investigation demand so.

Factorial was first barred by Sebi through an interim order passed in June 2014, followed by a confirmatory order in October that year, pending its further probe into the matter.

The fund later approached SAT against the Sebi order. The capital markets regulator had found that Factorial was involved as potential investor in the market gauging exercise undertaken by Credit Suisse (CS) as ‘Seller Broker’ of L&T Finance for its Offer for Sale (OFS) in March.

Sebi had found Factorial guilty of violating fraudulent and unfair trade practices regulations, saying it traded on the basis of its access to unpublished price sensitive information (UPSI).

Factorial had traded in derivative contracts of L&T Finance with Offshore Derivative Contracts (commonly known as P-Notes) through five different FIIs (Foreign Institutional Investors) – namely Macquarie Bank, Goldman Sachs Singapore, Merrill Lynch CM Espana, Nomura Singapore and Citigroup Global Markets Mauritius Ltd.

The 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 had said in its interim order.

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.

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*The report first appeared with Economic Times

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