Sebi orders ₹173 cr disgorgement from 8 entities for IEX insider trading

Individuals got price-sensitive information before announcement from high-ranking CERC officials

In one of its biggest actions against insider trading, the Securities and Exchange Board of India (Sebi) on Wednesday barred eight individuals from the market and directed impounding illegal gains of Rs 173 crore for alleged insider trading in the scrip of Indian Energy Exchange (IEX).

 

These entities carried out trades based on price-sensitive information from high-ranking officials of the Central Electricity Regulatory Commission (CERC).

 

The market regulator had initiated a suo-motu examination in the matter following a sharp correction in the shares of IEX in relation to an announcement by the CERC.

 

A fall in the share price coupled with an increase in trading volume before the announcement by CERC indicated the possibility of trading based on prior information of the announcement, which the Sebi investigated.

 

Additionally, these individuals were shortlisted based on their positions taken in Put Options contracts of IEX in a manner which was contrary to their usual trading pattern.

 

CERC had on Jul 23 announced implementation of market coupling which involves centralized matching of bids from various power exchanges to streamline price discovery.

 

The announcement was bound to have negative impact on the scrip—and led to a fall of 29.5 per cent in IEX on July 24.

 

In the ex-parte interim order, the market regulator noted that the individuals had negligible trades in the pre-and post analysis period but the volumes traded increased substantially only when they had access to un-published price sensitive information.

 

Sebi has alleged that these individuals were from connected families and were also in touch with a senior official named Yogeita S Mehra from CERC in personal capacity. Analysis of evidence collected in a search and seizure in September and personal chats on WhatsApp also revealed the involvement of an astrologer as a common connect between the CERC official and the individuals. The astrologer also guided them on trades.  

 

Another CERC official named Gagan Diwan, part of the division involved in the market coupling announcement, shared information to the individuals.

 

The individuals on whom Sebi has cracked the whip include Bhoovan Singh, Amar Jit Singh Soran, Amita Soran, Anita, Narender Kumar, Virender Singh, Bindu Sharma, and Sanjeev Kumar.

 

The eight individuals had invested heavily in Put options of IEX before the CERC announcement anticipating to make the maximum benefits out of the sharp fall that was expected to happen in the price of scrip of IEX.

 

Sebi noted that these trades “speak volumes about their trading behaviour and the manner in which the whole scheme has been orchestrated”.

 

“If only a handful of individuals are able to create information asymmetry in the otherwise free and fair securities market, investors would lose faith and the same would result in jeopardizing their interests,” noted Sebi whole-time member Kamlesh Chandra Varshney in the 45-page order.

 

Sebi order notes that part of the alleged ill-gotten gains have already been transferred to certain connected entities and that the action was required to stop transfer of money out of the regulatory reach. The matter will be further investigated.

 

The bar on dealing in securities will cease to apply upon crediting the impounding amount. However, they will not be allowed to trade in securities of IEX.