E-commerce firm Infibeam Avenues lost around 71 per cent of its market value on Friday, in what is being attributed to manipulation of the ‘cash-settled derivative market’ and a WhatsApp message that may have aided market operators.

The sharp fall in share price to ₹58 from Thursday’s close of ₹197 came a day ahead of its shareholder meet.

There is a view among brokers and fund managers that operators are taking advantage of the settlement process in the cash-based system in derivatives, which is exposed to manipulation due to lack of circuit filters and other counter measures available to investors during a market crash. Also, some operators float WhatsApp messages that help them with “nuisance value by spreading rumours”.

How the crash happened

In a cash-settled system, delivery of shares is not required and derivative contracts are settled by paying the difference between the strike price and the value of the underlying security. But under physical settlement, a buyer or seller of F&O contracts has the choice to seek delivery of shares if the speculator tries to artificially increase or suppress derivative prices.

“Infibeam crashed on Friday as there was no counter-party to the short-sellers,” said the research head at a large Mumbai brokerage house. “Institutional holding in the stock is very less and it is these kind of shares that operators target. There was no option to force delivery on short-sellers in Infibeam, which would have otherwise ensured a check on agenda-based selling in derivatives.”

On Friday, speculation in Infibeam was high as an old WhatsApp message resurfaced on several groups. “Forensic analysis of the company’s financials had reflected flags and alleged, among other things, that the company had given interest-free and unsecured loans to its units,” said the message.

Infibeam denied all the allegations in the message. Equrias, the brokerage named in message, said it had not put out any WhatsApp message. Brokers pointed out that on Thursday, equity derivative volumes were around 42 times more than the cash market volumes as, in derivative markets, there is no obligation on the trader for delivery and he keeps pumping up speculative trades.

“Be it Infibeam today or DHFL, Indiabulls Housing Finance and YES Bank in the past couple of days, time and again it has been exposed that cash-settled derivative markets are going against the interest of investors,” said Deven Choksey, founder promoter, KR Choksey Investment Managers. “The regulator has taken the initiative to bring delivery-based settlement in derivatives and it’s a step in the right direction.”

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