News Column

Foreign help in cracking insider trading cases

June 9, 2014

SECURITIES and Exchange Board of India ( Sebi) is likely to seek help from market regulators in Hong Kong, Singapore and Mauritius as it widens investigations into suspicious market activities of several overseas hedge funds.

Sebi last week barred Hong Kongbased hedge fund Factorial Capital Management from Indian markets for alleged insider trading charges in L& T Finance shares.

According to sources, Sebi is looking at trade practices being adopted by some other foreign investors as well for possible insider trading. It is suspected that some hedge funds operating through tax havens like Cayman Islands and British Virgin Islands may be routing Indian money back into the markets here to evade taxes.

While it is difficult to get information from these jurisdictions, many such funds are managed by entities registered in countries like Singapore, Mauritius and Hong Kong, and Sebi may seek information from their regulators through bilateral and multilateral memorandums of understanding.

Many hedge funds also operate through foreign institutional investors ( FIIs) which have parent firms based in better- regulated markets like the US, the UK, and other European countries. It is suspected that these hedge funds are taking positions in Indian markets with participatory notes, issued through registered FIIs, to make a fast buck after gaining access to "unpublished price sensitive information". In the Factorial case, which has been charged with making unlawful gains after accessing UPSI about a proposed share sale by corporate giant Larsen & Toubro in its subsidiary L& T Finance Holdings, Sebi may approach Hong Kong'sSecurities and Futures Commission ( SFC) for information.

Hong Kong- based Factorial, however, claimed that the allegations against it were without merit and it was confident that a complete investigation would absolve it.

Sebi and SFC are signatories to a Multilateral Memorandum of Understanding for consultation, cooperation and exchange of information among various regulators through a platform provided by international organisation of securities commissions.

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Source: Mail Today (India)

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