6 AUG, 2012, 04.38AM IST, APURV GUPTA,ET BUREAU
Operators used front companies to manipulate stock prices: Sebi
Market regulator Sebi's interim order restraining 19 entities on Friday shows that significant market activity in certain stocks continues to emanate from front entities, which seem to be acting on behalf of operators or financiers.
The initial probe has thrown forward certain interesting facts on the trading concentration by a handful of entities and mismatch in the trading activity of these clients vis-a-vis their disclosed income in the knowyour-client or KYC form.
On July 26, these entities sold large chunks of shares in Tulip Telecom, Pipavav Defence, Glodyne Technoserve and Parsvnath Developers leading to a crash in their share prices. Sebi says these cannot be passed off as normal trades.
Market analysts say that the data gives an impression that some of these entities were possibly acting as fronts of some operators or promoters for the purpose of maintaining prices artificially high.
Arun Kejriwal, founder of information and research firm KRIS, says that a large part of the volume in the markets is not genuine. "In this case, only a handful of suspicious entities were actively trading in certain stocks. Most of them were operating in tandem with each other and had no other major trading pattern other than a few stocks. It seems that most of them were acting as fronts for somebody."
Sebi, in its order, says that the trading pattern does not appear to be commensurate with the income shown in the KYC records. Take the case of Neelanchan Mercantile, a company which has not provided its income details. It has done a gross trading of around Rs 1,508 crore this calendar year so far. Almost 91 per cent of this was confined to the four aforementioned stocks. The data also shows that many entities have a common address and telephone number or an address in Kolkata. In a specific case, the address is shared with another company barred by Sebi from trading in the securities market for creation of artificial market and price manipulation.
ET, in its edition on July 27, reported that most of the sellers were fronts of a Kolkata-based operator, who was involved in the 2001 payment crisis on the Calcutta Stock Exchange.
Curiously, the order says that the share sales happened at a discount and were done to lower the share prices. While the order does not give any reason, brokers say that the sales at a discount will happen only if the seller is expecting a default, making it difficult to recover their investment.
"The investors seem to be desperate to sell the shares irrespective of the price. It seems that they resorted to selling after the financier raised his hands. Sebi should go beyond these entities and find out if all the disclosures made by the companies are proper. One should also find out how these entities have shown small amount of income and traded shares worth hundred of crores," adds Kejriwal.
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