An initial probe by government agencies has revealed that the bear cartel targeted Adani companies through the use of structured product derivatives (SPDs), reported Businessline.
Key points
- Structured product derivatives (SPDs) are potent stock market instruments, tailor-made by foreign brokers for large clients in offshore jurisdictions.
- These SPDs are similar to the participatory notes in many ways since the identity of the actual clients stays hidden, unless the regulators lift the veil.
- As per India’s tax and SEBI laws, short selling of domestic stocks outside the country’s jurisdiction is illegal unless they are listed on any exchange.
- As per the Bussinessline, the probe reveals that billions of dollars worth of trading took place in Adani group stocks outside the country, which had a domino effect on India-listed shares as the volatility increased.
- The use of derivative ‘options’ is the most powerful strategy for short selling stocks and structured product derivatives (SPDs) wield them most effectively.
- If trader “A” is bearish on a particular stock or market but does not want to take direct position, he may approach a foreign broker, who after a thorough risk assessment, will sell him the Put options of the underlying with some spread and higher than usual brokerage commission.
- SPDs can consist of anything in the debt, equity, and commodity universe for short selling and are sold for one-three month periods.
