Sebi mulls tightening noose on share sale to institutions

Market regulator Sebi is considering greater oversight over share sales in listed firms, especially small and mid-size companies, through large open market deals and the Qualified Institutional Placement (QIP) route.

Besides tightening disclosure norms for such deals, the market watchdog is considering enhancing its oversight on developments preceding and following these transactions, to keep a watch on share price manipulation attempts by promoters or other market intermediaries, a senior official said.

The move follows probes by the regulator into recent cases of insider trading as also the initial findings from the ongoing investigation into the recent loan bribery scam, the official added.

It is suspected that some entities, which could include those related to the promoters or market intermediaries like brokers and investment banks, push up the share prices of some mid or small-size companies and create heavy volumes on those counters before approaching the unsuspecting institutional investors for a share sale deal.

Such deals are generally done through large-size open market transactions, known as bulk and block deals, or through the QIP route, where shares are sold to institutional investors at a price generally discovered through book-building process.

Sources said Sebi might look into all the large-size transactions having taken place in the shares of small and mid-size companies ever since the recovery begun on the bourses in March-April this year.

Sebi is already probing possible front-running and insider trading in shares of over two dozen companies, including some blue chips, by entities and persons involved in the case unearthed by the Central Bureau of Investigation (CBI).

The initial findings, when corroborated with the charges made by the CBI, indicate large-scale front-running deals or shares being purchased or sold in these companies on the basis of prior knowledge about investment decisions being made by large institutional investors.

These large institutional investors could be LIC, whose Secretary (Investments) figures among those arrested by CBI, as also those investors who participated in share or debt placements arranged by investment banking and financial services firm Money Matters, sources said.

The probe would encompass large dealings and any irregular spurt in volumes or prices of shares of all the companies where these institutional investors had bought or sold shares over the past two years, they said. Given the sensitivity of the matter and the probe being in its preliminary stages, the official declined to disclose the names of the companies, while adding that all the companies whose shares have been manipulated might not be themselves at fault.