In June, 2014, SEBI had issued an ad interim ex-parte order restraining Factorial Master Fund from accessing the securities market and prohibited the fund from buying, selling or dealing in securities, till further directions. FM fund challenged the directions issued under the interim order by submitting that the facts and circumstances do not warrant an intervention. The issue before the whole time member was that whether the directions issued under the interim order needed to be confirmed, vacated or modified during the pendency of the investigation. The member, after examining the facts and circumstances, passed an order confirming the directions issued under the interim order.

The member observed that FM fund created an unusual and aggressive short position on the derivative contracts of LTFH on 13 March, 2014 ahead of the LTFH offer for sale and asserted that the short position was taken based on the UPSI available with the fund. The member held that FM fund was involved as a potential investor in the market gauging exercise undertaken by Credit Suisse, therefore this strengthens the prima facie finding that FM fund was in possession of UPSI about the discounted floor price of the LTFH offer for sale. The member further opined that it is highly unlikely that FM fund, which previously did not have any exposure to the scrip of LTFH, took an aggressive short position without being in possession of UPSI. The member further opined that it was highly unlikely that the FM fund would have taken a reverse position of the same number of shares in the cash segment by subscribing to LTFH offer for sale, unless it was in possession of the UPSI.

The above order is solely based on mere suspicion that FM fund which did not have any exposure in the scrip took an aggressive short position. Since it was contrary to market behaviour, therefore FM fund took such a position as it was in possession of UPSI. The directions issued under the order appears to be harsh, as the same has been passed on mere presumption that the fund was in possession of UPSI and the fund’s attempt to rebut the presumption was ignored by the member by reasserting the conclusion reached in the ad interim ex-parte order.