Amid several instances of market manipulation , capital market regulator Sebi may tighten disclosure rules to check operators and company promoters cutting bulk trades outside the regulator’s radar, feel fund managers and brokers. It is common knowledge in market circles that most promoters control undeclared investment arms through which they buy and sell shares of their companies. This helps them evade creeping acquisition norms and other mandatory disclosures.

“It appears there is enough evidence with Sebi to show how open offer regulations have been side-stepped by purchasing shares through multiple entities carrying out bulk trades. It’s likely that Sebi may ask bulk trade participants to reveal themselves,” said a Mumbai-based broker.

Recent investigations show that it’s possible for market operators to buy large blocks of shares well exceeding the open offer trigger limit of 15%.

“In Sangam India , the Dangi group, along with Ashika Group on November 23, 2010, had provided an exit route to investors such as Swiss Finance Corporation (Mauritius) and India Advantage Fund-I which were approximately holding 23.01% share capital in the said company,” said Thursday’s Sebi report on share trader Sanjay Dangi and entities controlled by him, alleged to be rigging share prices in collusion with the promoters. Sangam officials were not available for comment.

Broker-members are required to disclose to the stock exchanges all transactions for a client wherever the total quantity bought or sold is more than 0.5% of the equity shares of that company. This is referred to as a bulk deal. A block deal is one which is for a minimum of five lakh shares or a trade worth Rs 5 crore.

Fund managers and brokers say that one way of curbing malpractices would be for the regulator to relax norms for block deals and ensure that large deals are done through this window. The block deal window on the BSE and NSE — for a minimum of 5 lakh shares or for trades worth Rs 5 crore — is open for only the first half an hour of the trading session.

The transaction price can’t be more than plus or minus 1% of the previous day’s closing price, if the deals are struck right at the start of the session, or plus or minus 1% of the prevailing market price once trading commences for the day.

Brokers say that when it comes to large trades in mid-cap stocks, many fund managers prefer to route the trades through the regular window. One reason is that the buyer may want to keep his identity secret. This is not possible, if the trade has been done through the block deal window: identity of both the buyer and seller has to be disclosed.

Another reason, allege market watchers, is that bypassing the block deal window facilitates front-running — an illegal activity in which a trader takes a position in an equity based on advance information of an impending trade.

“Bulk deals are always negotiated, with the broker(s) finding a counterparty before entering the order on the trading screen,” says a BSE broker , adding that promoters often use undeclared investment arms to absorb heavy selling in their stock from institutional investors. “But they buy in small chunks so as not to trigger the 0.5% limit for disclosing trades to the bourses,” the broker said.

Last week, India Advantage Fund and Swiss Finance Corporation together sold around 90 lakh shares of Sangam. Of which, around 63 lakh shares were picked by Sanjay Dangi-controlled Pacific Corporate Services and Ashika Group-backed Withal Commercial. According to Sebi regulations, if entities or persons acting in concert acquire more than 15% in a company, they have to make an open offer for additional 20% of the company’s equity.

In the case of Sangam India, the Dangi and Ashika groups were acting in concert, as the Sebi investigation showed.

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