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The Ketan Parekh (KP) saga 2.0 unfolds as a gripping tale of high-stakes patronage, power maneuvers, and betrayal, according to insiders in India’s power circles. More than two decades after the notorious stock market operator gained infamy for the 2001 stock rigging scandal, KP’s shadow continues to loom large over India’s financial markets. Despite repaying nearly ₹400 crores to Madhavpura Mercantile Bank in 2008, his 14-year ban by SEBI in 2003 marked only the start of a complex web of alleged clandestine operations.
KP, often compared to legendary trader Jesse Livermore for his market acumen, retains a larger-than-life reputation. Politicians view him as a financial linchpin, and his alleged operations have been a subject of hushed discussions in Mumbai and Delhi. However, it took Madhabi Puri Buch, SEBI’s first female chief, to crack down on front-running operations tied to KP. SEBI’s integrated surveillance system flagged alarming data on stock manipulations in early 2023. By June that year, a team of 75 officials raided locations in Kolkata and Mumbai, uncovering data and WhatsApp chats implicating KP.
The 18-Month Hiatus
Despite gathering substantial evidence, SEBI remained silent for 18 months after the raids, surprising many. No Ex-parte orders were issued to alert the market or investors. Rumors suggest KP used his connections in New Delhi to stall regulatory actions.
Things shifted dramatically after this lull. Speculation points to internal strife within regulatory and political circles. A senior regulatory official, reportedly upset over a denied tenure extension, may have reignited the case. The new Ex-parte order, issued after this extended silence, raises questions about the timing and underlying motives. KP appears to be a pawn in a broader power struggle between New Delhi and Mumbai’s financial elite.
Front Running: Bigger Than It Seems?
A critical revelation emerged from co-accused Rohit Salgaocar during SEBI’s investigation. Salgaocar disclosed that a “Big Client” provided him with a list of desired stocks, which he checked with KP for availability. The client was Capital International Group, managing $185 billion in global equities. Salgaocar admitted that 90% of the Big Client’s trades were routed through KP.
Why would a client rely on KP when stock exchanges offer open access to equities?
- Impact Cost Concerns: Large-volume purchases risk pushing share prices higher, affecting the average acquisition cost. Agents like Salgaocar, aided by KP, secure bulk shares within narrow price bands, mitigating this risk. KP’s network of front entities skillfully acquired and sold shares without triggering alarms, making him indispensable to major funds.
- Kickbacks: Allegedly, KP compensated fund managers with a cut from his earnings, creating a mutually beneficial arrangement. SEBI’s estimate of illegal gains at ₹66 crores could be conservative, given KP’s long-standing operations.
Capital International’s Defense
Capital International claims KP and Salgaocar merely “warehoused” stocks, not front-running them. Following SEBI’s raids, the fund continued its relationship with Salgaocar, citing his efficiency in securing optimal execution. This support underscores KP’s influence in global fund management circles, as Capital International collaborates with Morgan Stanley on major equity indices.
Unexplained HDFC Trading
On November 25, 2024, a staggering $5 billion worth of HDFC Bank shares exchanged hands following MSCI’s index rebalancing. Despite the massive volume, HDFC’s share price rose by only 2%. Most trades occurred in the final half-hour, yet no block or bulk deals were reported. This anomaly raises questions about whether the trades involved warehoused stocks or front-running.
KP’s Secret to Survival
KP’s resilience stems from powerful allies. A former politician, notorious for market interference during his tenure, reportedly advised KP to operate from the shadows. This strategy shielded him from scrutiny even after his official ban ended in 2017.
Despite his absence from official trading, KP’s network continues to shape India’s stock market, highlighting the need for robust regulatory vigilance. The SEBI crackdown, though long overdue, signals an essential step toward addressing the deeper challenges of front-running and shadow operations.
