Offshore foreign banks under Sebi's scanner for suspected role in manipulating stock prices

Capital markets regulator Sebi has started cracking down on offshore units of major global banks for their suspected role in manipulation of share prices in the Indian stock market.

Top officials said the regulator is closely looking at possible instances where share prices of companies listed in the domestic stock market are being manipulated through offshore centres of foreign banks.

This comes at a time when the Supreme Court-appointed Special Investigation Team (SIT) on black money recently made a suggestion to Sebi to put into place regulations to identify individuals holding participatory notes or offshore derivative instruments (ODIs).

According to top officials, indications are that offshore units of some major foreign banks, including those headquartered in Switzerland and the UK, are being used to manipulate share prices in the domestic stock market.

Sebi would also look into possible misuse of these units to launder unaccounted money through the domestic stock market but there are no clear indications in that regard yet, they added.

The watchdog is taking a closer look at possible misuse of Participatory Notes (P-Notes) to ascertain whether more stringent measures are needed to curb such activities, the officials said.

There are complaints that some portfolio managers at some banks, which have a significant presence in Indian financial markets, could have helped clients route money back into the country as foreign funds using investment vehicles across jurisdictions.

Incidentally, Sebi whole-time member S Raman today said that the regulator does not "dismiss the concerns raised by SIT with regard to P-Notes but Sebi has been very proactive on such matters much before these concerns were raised and will continue to be so".

There are "sufficient checks and balances" on capital inflows by foreign investors into the domestic equities, he said on the sidelines of an event in Mumbai.

With regard to P-Notes, the regulator has put in place a strong deterrence to check any misuse of participatory notes and these can be issued only by well-regulated overseas entities such as sovereign wealth funds and pension funds of foreign governments.

The Securities and Exchange Board of India (Sebi) has a strong surveillance system in place that generates over 100 alerts a day.

"We have strengthened our surveillance systems. In our surveillance systems, all the trading that happens in our country gets captured. We get alerts for all the trading. We are getting at least 100 alerts per day from our systems," Sebi Chairman U K Sinha told PTI recently.