Sebi accuses Factorial of insider trading in L&T Finance shares

Says Factorial earned profit of about Rs 20 crore from the transactions

Securities and Exchange Board of India (Sebi) on Thursday, 5 June 2014, issued an order restraining Factorial Master Fund, which is domiciled in Cayman Islands and operates as a hedge fund, from dealing in the securities in Indian securities market, including through Offshore Derivative Instruments and/or accessing the Indian securities market, directly or indirectly, in any manner whatsoever till further orders on allegations of insider trading in shares of L&T Finance Holdings.

Sebi said on 13 March 2014, abnormal movement was observed in the share price of L&T Finance Holdings (LTFH) and, therefore, Sebi undertook preliminary examination in the matter. Sebi said it observed that on 13 March 2014, i.e. the day on which the shares of LTFH were included in the futures & options (F&O) segment, the price of the March expiry futures contract of LTFH in the F&O segment opened at Rs 87.80, and dropped by more than 10% to close at Rs 75.55 on the same day. In cash segment, the scrip had opened at Rs 86, rose to Rs 88 and then dropped by more than 10% to close at Rs 79.20.

Sebi observed that just before 13 March 2014, Factorial was involved as potential investor in the market gauging exercise undertaken by Credit Suisse Securities (India) with regard to Offer for Sale (OFS) of LTFH shares by promoter L&T. Credit Suisse was appointed by L&T as Seller Broker in the OFS.

Sebi observed that Factorial built substantial short position in LTFH (84.15% of the market wide open interest) in the futures & options segment on 13 March 2014 at average price of Rs 80.94 ahead of announcement of the OFS of shares of LTFH at a floor price of Rs 70 on the same day in the late evening. Sebi also observed that Factorial had taken such an aggressive short position without any existing exposure in the shares or derivatives of LTFH. Sebi said five different and independent FIIs were used to build the short position in LTHF. Sebi also said nearly the same number of shares were covered in cash segment the next day by subscribing to the OFS at a price of Rs 71.50, locking a profit of approximately Rs 20 crore.

Sebi said that Factorial may file its reply, if any, to Sebi on this order within 21 days from the date of receipt of this order, if it so desires, avail an opportunity of personal hearing on a date, place and time fixed in that regard by Securities and Exchange Board of India.

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