MC Exclusive: Sebi search and seizure on traders who seem to have profited from non-public information on regulatory action

In an earlier interaction, legal experts told Moneycontrol that search-and-seizure is more serious than standard inquiries from the regulator.

The market regulator has recently carried out search and seizure operations on options traders who seem to have profited from advance information on regulatory actions against some banks and NBFCs, according to sources familiar with the matter.

In early July, officials of the Securities and Exchange Board of India (Sebi) went to homes of nearly 10 traders, who were seen to be shorting stocks through options just before regulatory actions. In one case the office of a trader is said to have been the target of a search and seizure operation.

Sebi officials began investigations in June.

As part of the probe, Sebi analysed trades done around the time the central bank acted against certain banks and NBFCs. Sebi officials noticed that a set of traders were shorting stocks of these entities before the information about the regulatory actions was made public.

Also read: MC Exclusive: Sebi ups vigilance; examines phones, laptops of key mutual fund executives in surprise inspections

The sources familiar with the development told Moneycontrol that these traders had carried out several transactions and may have in all executed close to 10 such trades. The profits in each instance were not big though, the maximum being around Rs 1 crore.

The Sebi probe is focused on whether these traders had access to price sensitive information.

Sebi did not respond to an email sent on Friday evening. This story will be updated if they respond.

In an earlier interaction, legal experts told Moneycontrol that search-and-seizure is more serious than standard inquiries from the regulator, and that the former can involve more intrusive examinations and may imply more serious allegations.

Ravi Prakash, associate partner at legal and business consulting firm Corporate Professionals, told Moneycontrol that the regulator opts for this route when there is a "significant risk of evidence tampering or destruction or where cooperation is not being offered by the parties under SEBI's lens".

Also read: MC Explains: Why are Sebi’s search-and-seizure ops more serious than routine inquiries?

He added that this may be used to unravel complex fraud schemes or insider trading cases where mere inquiries may not suffice to uncover hidden or concealed evidence.

Moneycontrol had written about how the regulator has increased its vigilance across market participants recently. Over the past 12 months, five out of the top ten mutual funds have been subject to these inspections, with mobile phones of some top executives accessed by the capital market regulator.