Midcap crash

Market regulator Sebi has barred 19 entities from the securities market after an initial probe into the recent share price plunge in some mid-cap stocks, including Parsvnath, Tulip Telecom and Pipavav Defence.

Passing an interim order against these entities, which includes individuals and companies having dealt in these stocks, Sebi said it would expeditiously complete its investigations into the matter.

The entities restrained from accessing the securities market and prohibited from buying, selling or dealing in securities in any manner whatsoever include 4a Financials Securities, A To Z Steels, Ajit Kumar Jain, Trade Comm, G N Credits, Gajria Jayna Precision Industries, Kuvam Plast, Littlestar Vanijya, Manish Agarwal and Milestone Shares & Stock Broking.

The others among the 19 barred entities include Neelanchal Mercantile, North Eastern Publishing & Advertising Co, Passions System Solution, Premium Hospitality Services, Ramkripa Securities, Umang Nemani, Venus Infosoft, White Horse Trading Co and Yashika Holding.

These persons and entities can file their objections, if any, within 21 days from the date of this order, Sebi said in the order passed on Friday.

The probe relates to a sharp plunge of 20-26% in the shares of Parsvnath Developers, Pipavav Defence and Offshore Engineering, Tulip Telecom and Glodyne Technoserve on July 26 at the BSE and NSE. 

Sebi said a sharp downward movement was noticed in these stocks between 0915 and 0949 hours on that day.

These stocks witnessed sharp intra-day price volume movement on both BSE and NSE on July 26, although no major corporate announcements or price sensitive information was disclosed to the exchanges by these companies during previous 15 days.

After analysing the trading activity of major clients, NSE and BSE found that some of these clients were not only common across these scrips but they also traded on both the exchanges.

A further probe into the matter found that the top identified clients whose sell volume constituted a significant share of the total sale transactions in these stocks accounted for up to 95% of the total sale transactions.

Sebi said the analysis of trade data showed that these traders were instrumental in pushing down the prices of the concerned stocks, as they were observed to be placing the sell orders below the best sell prices as well as the best buy prices available on various occasions.

Also, during the day, many entities related to the some of the traders were top net sellers in these scrips.

The regulator further said relationships have been established among some of the clients as per information available in its surveillance system, KYC details available with the stock exchanges, MCA databases and other publicly available sources.

Among others, Neelanchal Mercantile Private and Milestone Shares & Stock Broking have a common phone number and a common Kolkata address.

Flex Trade, Adish Jain and Manish Agarwal also have common phone number and a common address in Kolkata.

Milestone Shares & Stock Broking, Ajit Kumar Jain and Manish Agarwal were also found to have a common phone number.

Ajit kumar Jain is director in Mukesh Trade & Finance, which shares its phone number with Divya Drishti traders, which along with a few other related entities have been previously debarred from trading in market in the matter of creation of artificial market and price manipulation in scrip of Tijaria polypipes.

Having found various common addresses and phone numbers, Sebi`s probe has established that A To Z Steels, G N Credits, Premium Hospitality Services, 4a Financials Securities, Gajria Jayna Precision Industries, Venus Infosoft and Passions System Solution are related to each other.

Similarly, Neelanchal Mercantile, Flex Trade, Kuvam Plast, Milestone Shares & Stock Broking, Ajit Kumar Jain, Adish Jain, Nemani Umang, Step Two Corp, North Eastern Publishing and Advertising Co and Manish Agarwal are related to each other.

Further, a comparison of the trading pattern with the income details captured in KYC of the clients revealed that for certain clients the trading pattern does not appear to be commensurate with income shown in the KYC records.

For example, Manish Agarwal has disclosed his income at Rs 1-5 lakh, but did gross trading of Rs 4,910 million between January 1 and January 25, 2012.

Neelanchal Mercantile has not mentioned any income in KYC documents, but conducted trades worth over Rs 15 billion during this period, while a host of other entities also did trades way beyond their income levels.

A probe into concentration pattern of these entities from Jan.01 till July 25, 2012 showed that their trading concentration in the four stocks was up to 100%.

Sebi said their sale orders of substantial quantities were made with a view to create an impression of huge selling pressure at the time of start of the trading and several times the limit orders were placed at a price significantly below the Last Traded Price, thereby bringing down the price of the scrips. 

In some of the scrips, percentage of sell quantity by identified clients during the price fall patch was significant to their total sell quantity during the day and this was in the range of 50-100%, Sebi said.

Besides, the trading of the some of these clients during six months prior to July 26 was mainly concentrated in these four scrips only.

``In my view, generally, a seller would rationally seek a higher price to sell his shares; however, in this case the clients were placing sale orders at prices lower than LTP, thereby bringing down the price of the scrips,`` Sebi`s whole time member Rajeev Kumar Agarwal said in his order.

``More importantly, normally a seller would desist from revealing its entire sell quantity since that may cause the supply-demand balance to immediately become unfavourable to the seller. ``The data for the short period of time in each scrip indicates several instances of fully disclosed orders which were also a significant factor in causing the sharp decline of approximately 20 per cent in price of each scrip,`` he said.

Agarwal said the trading pattern of the clients` prima-facie indicates that there was a concerted attempt to artificially manipulate and depress the prices of the four scrips in a disorderly fashion.

Sebi said there is a prima facie case for a detailed probe, going by the ``several abnormal suspicious features which otherwise are likely to pass-off as normal buy and sell transactions in the market``, as also given the unprecedented price fall and significant volume of traded shares on July 26.

``It is noted that the trading pattern of few of the above clients along with other entities in various scrips including some of the aforesaid scrips for different periods is under examination of Sebi,`` the regulator said.

``... Further the trading pattern of the entities is prima facie found to be instrumental in depressing the prices of certain scrips at the beginning of the trading in the market on July 26, 2012.``

``If they are allowed to continue to operate in the market, the same is fraught with danger of immense mischief and incalculable damage to the securities market besides undermining the confidence of the investors in the fairness and integrity of the market,`` Sebi said.

The regulator said that it is ``a fit case where, pending detailed investigation, effective and expeditious action is required to be taken to prevent any further harm to investors and securities market and in order to protect the interest of investors and the integrity of the securities market.``

Sebi and the two stock exchanges had immediately swung into action after a sharp plunge was noticed in these four and a few other stocks on July 26.

The exchanges had also cut down the circuit filter on these stocks to five per cent to limit any further large-cap plunge in their share prices.