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SEBI will be conducting a close study to determine if there is any pattern in buying and selling by mutual funds (MFs) in both debt and equity markets and gauge its overall impact on market sentiments.
The market regulator is upgrading its integrated market surveillance system (IMSS) and IT infrastructure for the purpose, sources in the know told BusinessLine .
SEBI was recently prodded by the government to probe the market crash in September as it is believed that concentrated selling in debt instruments and non-banking finance company stocks was done with an intent to create a crisis and exploit the negative sentiments.
SEBI is already probing selling of commercial papers by MFs at rates higher than the prevailing market prices, which wipes out buying interest in the instruments at the time of their rollover. In such a situation, institutions are known to heavily dump stocks of entities that find it difficult to roll over their debt papers, thereby vitiating the overall market sentiment.
DHFL episode
In September when DSP MF sold debt instruments worth around ₹300 crore of housing finance company DHFL at around 18 per cent loss, it triggered a 60 per cent crash in the share price of the company in a single trading session. The stock recovered around 12 per cent from its low around market closing as those who had short-sold in the cash segment came to cover their position. For the short-sellers, there was no fear of huge buying in DHFL as news of DSP’s panic selling had hit sentiments in the counter badly.
The DHFL fall triggered a crash in several NBFC counters. Though SEBI has not questioned DSP’s move yet and the fund house has clarified that the selling was done in the normal course, the fact remains that most NBFC stocks crashed by over 50 per cent and benchmark indices fell over 10 per cent in the week following the DHFL episode.
IMSS system
The government is further looking into reports that say commercial papers of certain other finance companies are being offeredat substantial discounts to the market price since the beginning of this year, making it difficult for them to roll them over. But there is no readily available data with the regulator on this.
The IMSS system generates alerts for pre-defined market manipulation scenarios. Certain algo changes will have to be made into the system for tightening surveillance of MFs, the sources said. SEBI has a big team working in its integrated surveillance department that houses IMSS. Yet, the regulator has had faced criticism in the past for not being able to provide statistics on number of cases that its sophisticated IMSS and Data Warehousing Business Intelligence System had detected. Over ₹50 crore has been spent so far only on the IMSS system.
SEBI did not respond to an email query on the matter.
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