Sebi probing huge build-up of bearish bets on Infy stock

Mumbai: The Securities and Exchange Board of India (Sebi) is probing an unusual build-up of derivative positions in Infosys before the whistleblower letter alleging unethical practices surfaced last week, said two people familiar with the matter. The regulator will examine whether people with prior knowledge of the matter looked to profit from a fall in the share price sparked by the accusations. Infosys shares have tumbled about 14 per cent after the letter became public over the past weekend.

Sebi has asked stock exchanges for details of derivative trades in Infosys between September 21 and October 19.

“The regulator wants to know who have taken huge positions in the Infosys options during the period,” said a senior stock exchange official. An email query to Sebi on the matter remained unanswered.

The whistleblower letter dated September 21 was addressed to the US market regulator, the Securities and Exchange Commission (SEC), alleging that the company’s top executives broke rules with regard to accounting of revenue from large deals and their profitability. Even before the letter became public, there was increased activity in Infosys put options, raising eyebrows in the market. A buyer of put option is betting that the stock or index will fall.

Total open interest, or outstanding positions, in put options of Infosys surged from 56 lakh on September 20 to 1.1 crore positions in the first week of October. The open interest in put options at Rs 740 strike price surged from nearly zero to 18 lakh between September 18 and September 25. As on September 18, Infosys shares were trading at Rs 830 apiece. The build-up at Rs 740 strike price suggests some in the market were betting on the stock to fall more than 10 per cent.

This unusual surge in the Infosys puts happened even as the Bengaluru-based company was expected to post strong earnings for the quarter ending September. The company announced its results on October 11 and the stock was trading at Rs 810-820 levels during the period.

Stock exchanges have asked Infosys why the company failed to disclose the matter.

“Any whistleblower letter is a material development and needs to be disclosed to the public investors at the earliest. However, in this case there has been a delay of over a month and hence we are trying to find out with the company the reasons behind this delay,” said the senior stock exchange official cited above.


While the delay in disclosure is a violation of Sebi rules, it also amounts to violation of listing agreement between the company and the stock exchanges, which have powers to take action.

The regulator will also investigate whether the company’s board discussed the letter. Whenever a whistleblower complaint is made, the company’s board must take up the same issue. “We are checking if the company’s board has taken up the complaint for discussion. The inquiry is in early stages,” said a regulatory official.

The whistleblower had sent the letter to the special window for such complaints under the US SEC, while Indian market regulator Sebi has not been kept in the loop about the same, said a regulatory official.

Hence, Sebi intends to take “suo motu” cognisance of the matter and investigate.