So as I'd written earlier, I went through the SEBI order on the sudden mid-cap stock crash
and as is the case with most SEBI orders, I found it written up beautifully.
You should really try reading some of these sometime.
I'll try to quickly summarize; my thoughts at the
end.
- On July 26th, between 9.15 and 9.50 am, prices
of Pipavav Defence (PDO), Parsvnath Developers (PVD) and Glodyne
Technoserve (GDT) fell suddenly and without cause by 20% and that of Tulip
Telecom (TLT) by 25%. The marke, and SEBI, went WTF?!?
- NSE and BSE both dug into the list of sellers
and came up with the list of 19 entities which I'd posted here.
- The net sales by these entities in those four
stocks ranged from 51% to 95% of the market on NSE and 31% to 58% of the
market on BSE. They underbid on the stock by as much as 36% in
some cases. They were acting in unison i.e. one after the other. One would
place an order and after that got executed, someone else would place
another order and so on. And as one or two were driving prices downward,
other group entities were buying up the shares.
- SEBI dug into these entities and came up with
inter-linkages between them such as:
- Common phone numbers
- Common address
- Directorship in other entity
- Common CA (I found this brilliant)
- One of the guys, Ajit Kumar Jain, was found to
have links with companies that had been banned in the past for price
manipulation.
- A particularly neat touch was when SEBI
pointed out that these guys don't really have the stated income to be
trading in crores of rupees. Most of them were nil or upto 5 lakhs, with
two or three above 25 L.
- These companies, since Jan. 2012 were totally
into trading these four scrips and nothing else. 11 of them traded these
80% of the time or above.
- From the order, directly,
22. 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. 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% in price of each scrip.
23. One
basic premise that underlies trading on the stock exchanges is that the
clients conform to standards of transparency and ethical behavior
prescribed in the various regulations and statutes, relevant in this
regard and do not indulge in fraudulent , manipulative and unfair trade
practices while dealing in securities. In this case, the above trading
pattern of the clients’ prima-facie indicates that there was a concerted
attempt to artificially manipulate/depress the prices of these scrips in a
disorderly fashion thereby adversely affecting the integrity of the
securities market.
- And then, BOOM, you're barred from the markets
pending further investigation.
But seriously, what were these guys thinking? Did
they really think they could get away with something as blatant as this? I am
also thinking of the ways in which they could have pulled this off without alerting
the regulator.
First of all, get different SIM cards.
In today's day and age, that should seriously not be a concern. Register
different addresses. I'm sure these guys have enough bogus addresses or shell
companies listed anyway. So choose carefully. These two should be no-brainers,
really.
Now it should get interesting. They'll
need different companies, obviously, operating out of the different premises
and having different phone numbers, but they'll need different directors too,
or else they are related parties. A public limited company needs seven minimum
while a private limited needs two. That gives a minimum of four people, in two
pairs, establishing a buyer and a seller. Because if they short a stock and
someone else buys it up they’ll end up losing loads of money. The timing has to
be co-ordinated. You need to establish a pattern of trading across various
stocks before zeroing in on the two-three you want to short. Don’t concentrate
80% of your trading in those.
I’m still not convinced. If one set of
companies does all the selling and another apparently unrelated group of
companies does the buying, doesn’t it become obvious? Maybe the ‘operators’
should settle on less greed. If you end up causing 20% price-drop in 30
minutes, you are bound to raise eyebrows. Why not 5% across multiple scrips,
snap ‘em up and sell them back at normal price? Given the crores in which they
deal, even 5% would be a significant amount. But 20% is pushing it a bit too
far, I think. Plus it gets you debarred.
Use different CA’s for the companies.
That also should not be a problem, ideally.
Ideally, you’d have 5-6 different set
of companies, 6-7 companies constituting a set, operating throughout India
(think Golden Quadrilateral), co-ordinating via Skype (no telephone trails),
selling and buying throughout a session (this would require some serious cash,
but I think they might have that covered). Choose your timing, in the best case
scenario, you should only trigger the selling and spook the market enough so
that they start panicking and selling. That might be a tough nut to crack. Make
sure the individuals and companies involved trade across a range of scrips
before settling on the one you want to manipulate. Random distribution of
profits would ensure everyone gains in the long-run, and collusion is difficult
to prove. This is all a bit too simplistic, yes?
Establishing 30-40 private limited
companies in India would not be a big issue for the concerned parties. An
enquiry here would involve seizure of communication equipment and I don’t think
SEBI is authorized to do that. SEBI’s the regulator, not the police. How do you
prove collusion when there is (apparently) no contact between the parties? They
might be best friends but in the absence of documentation, even friendship is
hard to prove, no?
If you’re a party who knows how shit goes
down and are laughing your guts out at me, let me know. I’d love to learn. (Not
that I’d use it, of course, but knowledge and power and all that jazz...)
If you’re SEBI, what’s your workaround
for this? Do you even need a workaround for this?
Again, putting it on paper is a
gut-wrenching reminder of absolutely how much I have no idea.
No comments:
Post a Comment