Sebi may probe Credit Suisse over insider trade in L&T Finance

Securities and Exchange Board of India (Sebi) may investigate the domestic unit of Credit Suisse Group, in an extended probe into the shorting L&T Finance Holding by Hong Kong-based multi-asset fund Factorial Capital Management before the announcement of a share sale in mid-March.

The market regulator is likely to probe Credit Suisse to determine whether price sensitive information about the share deal was leaked by the investment bank.

Sebi, on Thursday, accused Factorial Capital Management of engaging in insider trading by shorting L&T Finance Holding before the announcement of a share sale and barred the hedge fund from trading in Indian securities over fraudulent and unfair trade practices (See: Sebi bars Caymans hedge fund Factorial Master from trading in India).

Sebi pas put at least 70 entities, including foreign brokerage firms, FIIs and others under the scanner for suspected insider trading activities and circulation of 'unpublished price sensitive information'.

Sebi said it had established that Factorial was approached by Credit Suisse about their interest in a potential share sale of L&T Finance by its majority owner Larsen & Toubro. Such an approach is part of the process of any deal. Sebi said Factorial then aggressively built a big short position in L&T Finance derivatives on March 13 - accounting for 84.15 per cent of all its outstanding futures and options positions - and covered its shorts through purchases in the heavily discounted share offering.

Sebi said it may probe whether Credit Suisse staff had revealed to Factorial Capital that the L&T Finance deal would be done at a discount, although the regulator did not accuse the bank of any wrongdoing.

Sebi has given the hedge fund 21 days to respond. ''At this stage, the channel of communication of the unpublished price sensitive information is not ascertainable,'' Sebi said. ''This aspect needs thorough investigation so as to come to a definite conclusion.''

Factorial, however, denied all Sebi allegations and said those were ''without merit'' and that it would fully cooperate with the investigation.

The accusations are seen as part of Sebi's stepped up efforts to fight insider trading. The regulator is in the process of overhauling its two-decade-old insider trading law to give it more muscle.