Foreign exchange regulators have written to the regulator of India’s major financial markets demanding an investigation into a number of deals in which overseas institutions have complained of slippage.
In a letter to the chairman of the Securities and Exchange Board of India (SEBI) Ajay Tyagi, two Asian overseas financial institutions urged the regulator to verify the details of the stock exchange of the transactions made during the contracts. The letter was sent by the Asia Securities Industry and Financial Markets Association (Asifma) and Asia TraderForum (ATF), said two people familiar with the matter.
“It is our belief, and we urge the SEBI to ensure this in exchange, that the beneficiaries of these slippage are participants and are informed rather than financial traders,” said a letter of January 18th. SEBI can verify the exchange of pre-transaction orders, which are negotiated to determine who benefits from the slippage. SEBI, Asifma and ATF did not answer questions.
Deals in bulk – a route used by groups of promoters and investors at major ticket centers to buy or sell large equity degrees in a company – usually with a planned buyer and seller. The number of shares has also been determined in advance. However, as the transaction takes place through standard means of matching transactions, some members may purchase some of these shares if their bids are the same as those set out in the bulk agreement. Therefore, sometimes a pre-determined buyer ends up receiving fewer shares than the target market share.
Hospitality groups cited slippage in eight separate agreements. The bulk deals mentioned in the letter include shares of companies such as HDFC, Bharti Airtel, Hindustan Unilever, ICICI Lombard, SBI Health and Kotak Mahindra Bank. As an example, highlight of a recent transaction involving Kotak Mahindra Bank where the names of the parties to the agreement were disclosed prior to this transaction.
Promoter Uday Kotak sold 56 million shares of Kotak Mahindra Bank to hold its stake on June 2, 2020. The shares were acquired by foreign and domestic institutions including JP Morgan and Oppenheimer. The hospitality groups shared a tweet of the same day showing the list of buyers even though the agreement was not yet in place. The letter darkened the handle, so the sender could not be identified. Asifma made a submission to SEBI saying that some unscrupulous traders were trying to forge ahead of future contracts after gaining information on mass trading in advance. SEBI had asked Asifma to provide evidence in support of the allegations and would otherwise close the case.
Asifma has been pushing for a change in the rules of mass trading in India for the past three years. Block Deals is a special platform for such transactions and only potential buyers and sellers can work through the block trading window. However, there are price limits on such deals.
