Ispat share zigzag show likely price manipulation

The sharp price movement over the past couple of weeks in the counter of Ispat Industries, now bought over by JSW Steel, suggest high operator activity in manipulating the rules.

According to market players who track the counter closely, the stock rose 50 per cent in just seven trading sessions to touch a high of Rs 26.20 on the National Stock Exchange (NSE). This was before any deal talks were reported by the media. The broader indices had not witnessed even a five per cent rise during this period.

Stock brokers say the method used by operators to rig the share price was to get the counter under curbs in the futures and options (F&O) segment of the NSE. A counter is put under F&O curbs when open interest (OI) positions in it cross 95 per cent of the market wide position limit. Once the curb is in place, participants are allowed to trade only to unwind positions. New positions can be created only after the OI falls below 95 per cent and the stock comes out of the ban period.

The Ispat counter was put under F&O curbs at least 10 times in the past few weeks. As a consequence, the share price kept rising, as huge long positions were created by operators, who may have known of the bids for the company or the plans for doing so.

Market players say there were two Mumbai-based operators involved in the Ispat operation, one nicknamed Dadhi and the other from one of the oldest stock broking firms. While positions of over 20 million shares were cut in the F&O segment, over 20 million shares were sold by operators in the cash segment in recent days, say industry sources.

The share today fell 14 per cent and was last traded at Rs 21.3 on the NSE.

Considering that Ispat came under F&O curbs due to OI of around 130 million shares, which constituted a little over 95 per cent of its market wide position limit, brokers say only Rs 40-60 crore were required for rigging its price. Ispat was trading at Rs 17; multiplied by 130 million shares, this comes to Rs 221 crore. However, trades in the F&O segment can be done by by paying only 20-30 per cent margin money. The operator then bought a huge quantity in the cash segment of the market, as there was no fear of any short seller in F&O after he had managed to get the counter under curbs.

“Ispat is yet another glaring case, where manipulators have exploited the same loophole that operators in the Ackruti City counter had used to double the share price in five trading sessions in 2009,” said Kishor Ostwal, managing director of Mumbai-based CNI Research.