The Securities and Exchange Board of India (SEBI) may look into a large amount of share transaction of Yes Bank under the Securities Lending and Borrowing Mechanism (SLBM) on July 9, sources said. These transactions took place a day prior to the announcement of the bank’s floor price for its Follow-on Public Offer (FPO).
Yes Bank fixed the floor and cap price at Rs 12 and Rs 13, respectively, on Friday.
On Thursday, investors borrowed 95,99,987 shares worth Rs 5.9 crore for an interest rate of around Rs 7 per share. Investors borrowed these shares for a one-month period, with settlement due on August 6.
According to the National Stock Exchange’s (NSE) SLBM data, a large amount of borrowings started from June 30 onwards. There was a further surge last week after the announcement of the FPO.
If the high premiums under SLBM are taken into consideration, it amounts to paying a 26 percent interest to shareholders.
"This must definitely be investigated. It should not be too difficult to find out who is borrowing the stock at such premiums in the SLBM segment. If the dividend yield plus the SLBM return of any stock exceeds the risk-free rate of return, something is not right. That's usually a bearish indicator,” Chirag M Shah, market veteran and practising counsel, told Moneycontrol.
SLBM is the mechanism for short-selling shares in the cash market. Investors sell shares by borrowing from SLBM in the anticipation that they prices will fall later. Once that happens, they buy at a lower price and settle their trade. If prices rise, they stand to lose.
However, while borrowing shares, investors have to pay an interest
On June 30, 46,394,401 shares were traded; on July 1, 54,26,233 shares; on July 8, 60,33,711; and, on July 9, 95,99,587.
In the last 20 days, lending rates have increased by 3200 percent from Rs 0.25 to Rs 8. On June 22, the closing rate on SLBM was Rs 0.25.
“Prices going up or down is par for the course, but if something is happening in anticipation of a corporate action like an FPO, and the kind of abnormal SLBM returns this stock is offering, it must be investigated without delay,” Shah said.
During the Ketan Parekh scam in 2001, traders had used the ALBM (Automated Lending and Borrowing Mechanism) route for market manipulation. After several restrictions, SLBM came into place.