YES Bank FPO: Several brokers under Sebi scanner over share freeze

Several brokers have come under the lens of the Securities and Exchange Board of India (Sebi) for facilitating the sale of YES Bank shares issued in the follow-on public offer (FPO) last week, defying a freeze on them.

Over 12.5 billion new shares issued in the FPO commenced trading on Monday. However, these were allotted to FPO applicants on Friday, with a separate international securities identification number (ISIN) that was frozen. In other words, these shares appeared in investors’ dematerialised (demat) accounts but couldn’t be sold as yet.

Some brokers are said to have allowed their clients to execute sell orders in YES Bank on Friday, ahead of the listing of the newly allotted shares. In doing so, they permitted clients to rake in a profit. The stock had closed at Rs 13.7 on Friday — 14 per cent above the FPO price of Rs 12.

Shares hit the lower circuit of 10 per cent at Rs 12.3 on Monday, following the listing. As there were only sellers and no buyers in the counter, several investors were stuck with the shares allotted in the FPO. “If brokers allowed clients to sell non-FPO YES Bank shares last week, then there is no violation. However, if they facilitated the sale of shares issued in the FPO, before Monday, then it is clear violation,” said a regulatory official.

YES Bank’s FPO closed on July 17, allotment was finalised on July 22 and shares got credited in demat accounts on July 24. People in the know said brokers might have taken advantage of the ‘T+2’ trading cycle to facilitate trades on Friday — or even on Thursday. ‘T’ denotes the day of execution, while ‘2’ is the number of days taken for shares to move in or out of the demat account.

“It will be difficult to establish violation. Even though brokers allowed the sale of shares on Friday, these would only move out of the demat account on Monday or Tuesday, when the ISIN of FPO shares would get merged with the regulator’s ISIN,” said an industry player.  On Thursday, shares ended at Rs 15.7 after touching an intra-day high of Rs 16. 

A query sent to Sebi didn’t elicit a response immediately. Exchanges narrowed the circuit for YES Bank from 20 per cent to 10 per cent, on Friday.