GMM short-selling: Punter’s luck or inside edge?

Mumbai: Did some punters in the market get a whiff of the discounted pricing of the share sale by promoters of GMM Pfaudler?The unprecedented surge in demand for GMM shares in the Securities Lending and Borrowing or SLB segment before the announcement of the pricing of the offer for sale (OFS) suggests some market participants would have been aware of the details in advance, said brokers.Traders borrow shares in the SLB segment to short-sell — a bet on a fall in the stock by borrowing shares. Since small-cap stocks like GMM is not part of the futures and options segment, betting on a fall in the shares have to be done by borrowing and selling short.Between September 15 and 21, nearly 74,000 shares were borrowed from NSE’s SLB segment when the stock price was hovering between Rs 5,900 and Rs 5,200. GMM Pfaudler shares were never borrowed in the SLB segment till recently. The OFS was announced on September 21 after market hours at a floor price of Rs 3,500, a 33 per cent discount to the price of Rs 5,203 on that day. The stock locked in a 10 per cent lower circuit on Tuesday and Wednesday with no buyers, helping short-sellers make a killing.GMM Pfaudler shares, which were borrowed from the SLB segment, were short-sold between Rs 5,200 and Rs 5,900, according to volume data. In the month till September 16, 49,500 shares were traded daily on both the exchanges on an average. Between September 17 and 21, total shares traded were nearly 6 lakh.Brokers said short-sellers could have bought the shares at Rs 3,500 per share through OFS on Wednesday in the final leg of the trade as the retail segment has not been fully subscribed. This deal has helped them make a net profit of Rs 1,700 to Rs 2,400 per share excluding the lending fee of about Rs 100-Rs 150 per share for a period of a maximum of 10 days.“It’s a clear case of insider trading and Sebi must investigate who borrowed this shares from the SLB segment just before the OFS,” said Arun Kejriwal, founder of Mumbai-based KRIS Research and Advisory.

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