SBI, Mahindra and Mahindra, ICICI, others face Sebi heat on sudden share price surge, ‘speculative’ leaks

A large number of listed firms, including top blue-chips, are facing heat of the stock market authorities for sudden surge in their share prices and trading volumes as also for ‘speculative’ information leaks leaving investors at large in the lurch.

In just about one and a half months since the beginning of this year, the stock exchanges have sought ‘clarifications’ from at least 19 Sensex blue chips including giants like Mahindra and Mahindra, Hindustan Unilever, SBI, Coal India, Wipro, Hero Motocorp, ICICI Bank, Cipla and L&T.

Beyond Sensex companies also, at least 100 such notices have been issued so far in 2015.

These include Pipavav Defence, Suzlon Energy, Claris Life, IDFC, Adani Enterprises, IPCA Labs, REI Agro, MRF, Punj Lloyd, Blue Dart, PVR, IRB Infra and Piramal Enterprises.

Such ‘clarifications’ have been sought on ‘sudden’ rise or fall in share prices and trading volumes, as also on news articles published about them about key business developments with implications for share prices, without first informing the investors at large through the stock exchange platforms, as mandated by the regulations.

In most cases it has been observed that the companies either delay their responses to the notices issued by the stock exchanges, or their replies have not been satisfactory and limited to pro-forma sentences like “we are not aware about the issue” or “we do not comment on speculations”.

The exchanges have flagged these cases for further action by the capital markets regulator Sebi, whose Integrated Surveillance Department (ISD) is looking into these matters.

Further investigation by the regulator and the exchanges have also showed that the ‘speculative’ news reports in many cases have come true at a later stage, which has been within a day or two in a few instances, despite the concerned companies having denied “any knowledge” about any such developments while replying to the clarificatory notices.

At least two major PR agencies are also under scanner for selective leak of information that could benefit a few.

The ISD receives information from a number of sources such as media scanning, IB reports, Sebi’s investor complaint portal SCORES, STRs (Suspicious Transaction Reports of various financial institutions) and exchanges, in addition to the regulator’s surveillance and data warehouse systems. The number of such alerts stands at about 1,000 so far in 2015.

Explaining the process, a senior official said the information is aggregated across exchanges and analysed by dynamic system based parameters and pattern recognising modules which throw up alerts for first level processing.

These first level alerts are further screened by a central processing team, which filters out cases for second level scrutiny. The shortlisted cases are comprehensively analysed by stock exchanges and the ISD for ascertaining any prima facie violations warranting immediate action.

About 100 stocks have been short-listed so far this year for further examination after initial processing, while further action has been initiated in 20-25 cases.

In the previous fiscal 2013-14, Sebi took ‘soft actions’ in more than 50 cases, while an equal number of cases were subjected to adjudication. In the first nine months of the current fiscal, the number of ‘soft action’ cases is already above 50, although the cases for further investigation and adjudication have been lower so far.

The stock exchanges have issued their own ‘observation letters’ in nearly 200 cases, while other actions including shifting of stocks to restricted trading groups or change in circuit filters have been taken in many more cases.

While serious cases would be subjected to adjudication and further penal action, the regulator and the stock exchanges are taking ‘soft actions’ like issuance of observation letters or caution letters in other cases.

The companies that have been issued ‘clarificatory’ notices by the stock exchanges so far in 2015 also include Suven Life Sciences, Lovable Lingerie, Tribhovandas Bhimji Zaveri, Take Solutions, Sun Pharma Advanced Research Company, Nissan Copper, Hindustan Dorr-Oliver Ltd, Shiv vani Oil and Gas Exploration Services Ltd, CNI Research and Elder Pharma have also been served such notices.

Other Sensex companies from whom such clarifications have been sought so far this year include Reliance Industries, Bharti Airtel, NTPC, Hindalco, Tata Steel, Dr Reddy’s Labs, Sesa Sterlite, HDFC Bank, ONGC and GAIL.

These notices are issued broadly in two cases — when the exchanges observe “significant price/volume movement” in the concerns stocks, or to verify news articles appearing in the news papers, websites, TV channels.

The companies are asked to inform the stock market participants and the investors about the accuracy of the news articles, as also about the ‘developments’ that result in any major movement in share price or the trading volumes.

The companies having received such notices also include Kirloskar Oil Engines, Orissa Minerals Development Company, Tata Communications, Tata Teleservices (Maharashtra) Limited, Opto Circuits, Kwality Ltd, Radico Khaitan, Ramky Infra, INOX Leisure, Gillette India, FTIL and D B Realty.

In one such recent notice, exchanges sought clarification from auto giant Mahindra & Mahindra about news reports that it was to acquire Pipavav Defence in a Rs 3,000 crore deal.

To this the company later replied that “it examines/ pursues various opportunities in different areas, from time to time on a continuing basis and it is not practicable to comment upon every opportunity at every stage.

“Given the policy of the Company of not commenting on speculative news/reports, we will not be able to comment on the same. As in the past, the company would continue to inform stock exchanges about any price sensitive information before the same is made public.”