Sebi looking into role of offshore bank units in share market manipulations

The Securities and Exchange Board of India (Sebi) has started a review of the alleged role of offshore units of major global banks in the manipulation of share prices in Indian stock markets, in the wake of revelations by the Special Investigation Team (SIT) probing the black money trail.

Sebi officials are closely looking at possible instances of manipulative purchases or sales of shares of companies listed in the domestic stock market through offshore centres of foreign banks.

The SIT, appointed by the Supreme Court to trace the origins and flows of black money had recently suggested to Sebi to put in place regulations to help identify individuals holding participatory notes or offshore derivative instruments (ODIs).

It was reported that some major foreign banks, including those headquartered in Switzerland and the UK are seen to be used to manipulate share prices in the domestic market.

These offshore banking units are also alleged to have been used to launder unaccounted money through domestic stock markets.

Participatory notes, which have been one weak spot where regulators have so far tried not to regulate too much, are also alleged to have been misused by manipulators to rig stock prices. Sebi is also taking a closer look at possible misuse of P-Notes to ascertain whether more stringent measures are needed to curb such activities.

Also, a client- bank nexus where 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.

Sebi whole-time member S Raman on Thursday said 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.

But the argument that P-Notes are well regulate as these can be issued only by well-regulated overseas entities such as sovereign wealth funds and pension funds of foreign governments does not hold water, for it was those well regulated banks that have brought down global financial markets in 2008.