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Sebi probes collusion between massive bond traders and YES Bank

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Mumbai: The Securities and Exchange Board of India (Sebi) has requested among the giant traders in the event that they have been ‘warehousing’ perpetual bonds of Yes Bank earlier than the securities have been palmed off to unsuspecting retail traders.

Why did these massive, institutional traders promote down the papers quickly after shopping for them within the major market? Did they obtain any incentives from the personal sector lender? Was there a back-to-back association? More importantly, why did Yes, after issuing these bonds, facilitate secondary market offers? These are amongst an extended record of questions raised by the capital market regulator in its letters to the majority traders a few month in the past, sources informed ET.

“From time to time, Yes Bank RMs (relationship managers) used to either call or email us to tell the names of interested buyers of these bonds, along with quantity and price… However, we sold only a small portion to retail investors,” mentioned an official with one of many establishments. Sebi has requested establishments to reveal names of Yes Bank officers who have been coordinating the secondary gross sales of perpetual bonds.

Neither Yes Bank nor Sebi responded to ET’s queries.

Even although issuers of such perpetual papers — or, extra Tier one (AT1) bonds in market parlance — are banks which not often, if ever, default, there are dangers that many small traders overlook. For occasion, though an issuing financial institution could promise a gorgeous curiosity, it might probably maintain again curiosity cost underneath sure circumstances; additionally, some choices have ‘call option’ for the issuer with out ‘put option’ for traders. In 2006, the Reserve Bank of India (RBI) had allowed banks to drift such bonds to shore up capital. Yes had issued ₹3,000 crore and ₹5,415 crore of AT1 bonds in 2016 and 2018, respectively. Earlier this 12 months a number of traders — giant and small — challenged the choice of the brand new Yes Bank administration to jot down down the AT1 bonds. The matter is pending earlier than the courtroom.


Among different issues Sebi has requested if there was a “formal or informal arrangement” between Yes Bank and establishments for the promoting down of AT1 bonds; whether or not establishments acquired any personal placement charges from the financial institution; or, did Yes Bank cost any fee from the establishments for facilitating such transactions.

The probe by Sebi, which not too long ago barred retail traders from subscribing to AT1 bonds, follows allegations of misselling. On May 25, 2020 ET had reported that Axis Trustee (representing bondholders) had signed an affidavit stating that these AT1 bonds (additionally referred to as tier-1 bonds) have been marketed as ‘Super Fixed Deposits’ by RMs of Yes Bank.

According to a Sebi letter reviewed by ET, the regulator has requested one of many establishments whether or not there was a “formal or informal arrangement” between Yes and the establishment that “Yes Bank Ltd will facilitate the sale of bonds in the secondary market”; and, whether or not the financial institution “had ensured” that the establishment would “earn profit in the aggregate for the secondary market sale transactions facilitated by Yes Bank.” Significantly, the regulator has additionally requested how costs have been being decided when bonds have been bought within the secondary market.

The establishments should share with the regulator the whole Yes Bank AT1 bonds they bought in major market, quantum bought down within the secondary market, and the break-up of secondary offers — to different institutional traders (facilitated by the debt capital market group of Yes Bank) and retail traders (recognized by the financial institution’s personal wealth administration group).

“Establishing any warehousing, or parking arrangement may take time. Thanks to the opaque and illiquid nature of the corporate bond market, it may at times be difficult to say whether deals have happened at fair price. It’s possible that there was an informal understanding between Yes and few large investors who had initially agreed to buy the bonds and sell down later. But the arrangement collapsed when they did not get a chance to exit and were saddled with the securities,” mentioned a bond dealer.

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