Sebi bars Caymans hedge fund Factorial Master from trading in India

The Securities & Exchange Board of India has barred Factorial Master Fund, an offshore hedge fund based in the Cayman Islands, from dealing in Indian securities pending an insider trading probe, after it found ''abnormal movement'' in L&T Finance Holdings Ltd shares.

Factorial locked in a profit of about Rs200,000 crore ($3.4 million) by taking an ''unusual and aggressive'' short position in the futures and options segment before a planned share sale by L&T Finance, while in possession of the likely floor price of the offer, Sebi said in an interim order on Thursday.

The order comes amid efforts by the regulator to crack down on insider trading. Chairman U K Sinha said in June that Sebi working on a stronger set of rules to curb share manipulation and trading on confidential information.

''It is incumbent to intervene promptly in the interests of investors and to safeguard market integrity,'' Sebi said in today's order, restraining Factorial from accessing the securities market until further notice. It sought a reply from Factorial within 21 days or present itself before the board for a personal hearing.

The Sebi allegations are ''without merit,'' Hong Kong-based Factorial Capital Management Ltd, which runs the Cayman Islands fund, told Bloomberg by e-mail today. ''Factorial will continue to fully co-operate, and is confident that a complete investigation will fully absolve it.''

Factorial built a huge short position in L&T Finance futures and options on 13 March from scratch and then covered it through purchases in the heavily discounted share offering, making the profit, Sebi said. The fund's bearish bets accounted for 84.15 per cent of the total outstanding contracts in the stock that day, the regulator said.

Larsen & Toubro Ltd. said it would sell 55.5 million shares in L&T Finance at a floor price of Rs70 apiece after close of trading on March 13. L&T Finance slumped 17 percent to 70.95 rupees over five sessions through 20 March.

The transmission of price-sensitive information by traders at Credit Suisse Group AG, which managed the share sale, needs to be examined, Sebi said, without indicating any wrongdoing by Credit Suisse.