Market regulator Sebi is looking into complaints that some bear cartels may be at play in beating down the share prices of some blue-chip companies through manipulations in the futures and options segment of the stock markets.
The regulator is analysing the trading pattern of many such stocks to ascertain whether any manipulation has taken place, while data is also being collected for the brokers and traders having traded heavily on these counters, sources said. According to a senior official, the bear cartels generally resort to such manipulations whenever there is a sustained downtrend in the markets, as they seek to maximise their profits by taking huge short positions in derivatives market on stocks and indices expected to witness a fall.
‘Going short’ typically refers to a trader taking a position that the prices would fall going ahead and the returns are determined by the quantum of the decline. While taking a short position is a permissible trade, the bear cartels try to maximise their profits through this route by manipulating the future movement of stocks or indices through methods like fraudulent placement of orders, manipulating the trade execution and at time by spreading false rumours in the market.
Sources said that Sebi is also looking into the possibility of any collusion of such bear cartels with some brokers, company promoters and other entities for any manipulative activities. In some cases, the companies have themselves requested the regulator to probe the role of any bear cartels in plunge in their respective share prices. Besides, the stock exchanges and the Integrated Market Surveillance System of Sebi have also generated some alerts for possible manipulation in the futures and options (F&O) segment.
The regulator as such allows only a small number of stocks and indices for F&O trading and these securities are selected from among the best and largest stocks available for trading in the market. While there are more than 5,000 listed companies in theIndian stock market, the F&O contracts are available for less than 150 securities.
Besides, the regulations do not allow any fresh position in the F&O contracts if their open position reach a significant level, or if any serious surveillance issue comes to the fore about them. The stocks for F&O trading are selected from amongst the top 500 stocks in terms of average daily market capitalisation and average daily traded value in the previous six months, among other factors.
Besides, these stocks need to continuously meet certain trading parameters to remain in the F&O segment and any stock after being excluded from the F&O list, cannot considered for re-inclusion for a period of one year. The average daily turnover of derivative trades on the stock exchanges have risen considerably over the past few years, especially at BSE which has been taking various steps to boost this segment to catch up with its larger rival NSE.
The derivative segment average daily turnover at BSE for the current fiscal is presently about Rs 34,000 crore, up from less than Rs 29,000 crore in the last fiscal and just about Rs 3,000 crore in the year prior to that. However, BSE’s daily average for the current month so far is just about Rs 18,000 crore, down from more than Rs 62,000 crore in July 2013.
At NSE, the daily average equity derivative turnover for August 2013 currently stands near Rs 1.3 lakh crore, as against about Rs 1.4 lakh crore in the last month. For the current fiscal so far, the NSE’s daily average is about Rs 1.5 lakh crore, up from about Rs 1.25 lakh crore in each of the previous two fiscals.