NEW DELHI: Shivraj Puri was a vain trader, with incompetence to match, said executives at brokerage houses that dealt with the Citibank employee arrested for duping investors of at least 400 crore.
Puri, who was based in the Gurgaon branch, made large, unhedged bets on Nifty futures and options and obsessively stuck to his doomed trading plan despite being warned to change course, three people connected with transactions by the disgraced trader said.
“He was a novice with no clear strategy,’’ said a derivative analyst who pored through Puri’s trades to understand how the losses totalled up. “He was trading in volatility without the right amount of hedges and got hammered when the Nifty moved against him. Puri started out with a bad premise, and as most rogue traders do, he met his nemesis thinking that he could beat the market. It was foolish. ’’
Puri was arrested last week for peddling fake investment schemes that promised assured returns of 20-24 % to wealthy clients and companies such as Hero Corporate Services Ltd. Since ET NOW broke the story on December 28, market regulator Sebi, stock exchanges and other regulatory agencies have been investigating how the scam was perpetrated and the role of the brokerages he dealt with.
Puri’s trades unravelled during September and November when the Nifty and its underlying volatility was huge. The 50-share index’ movement between its highest and lowest levels was 723 points in September , when it closed at 6,030, gaining 11.6%, its best monthly gain since May 2009. Volatility in the index, which whipsawed, was much worse.
The Nifty reversed in November, when it fell just 2.6%, but still showed an intra-month movement of 648 points, or 10.2%. Puri’s ‘short gamma trades’ were on the wrong side each time, the people said. Such a trade involves writing call or put options. While a trader earns a fee for selling the option, his downside, if not hedged, remains unprotected if the index moves in the opposite direction. In Puri’s case, he faced huge margin calls on his derivative positions, the people said. In many other transactions, a vast majority of Puri’s index options expired as out-of-the-money trades, thereby reducing his premium paid to zero, they added.
Puri never traded in cash markets or took deliveries. He was “heavily leveraged,’’ one relationship manager at a brokerage said. “60% of the time his margin positions were so critical that we had to call him repeatedly to fund them.’’ On active days, and there were many, turnover from Puri’s leveraged transactions touched 1,000 crore, trading logs shown to ET NOW reveal. That is equivalent to the turnover of a mid-sized brokerage on Dalal Street.
Puri held accounts in at least three brokerages, among them Religare Securities, IIFL and Bonanza Portfolio. The first two declined to comment for this story. Bonanza Portfolio Chief Executive Shiv Kumar Goel did not respond to phone calls.
Puri’s trading losses exceeded Rs 100 crore with a Delhi-based broker-age, where he had two demat-cum-trading accounts. Once the losses exceeded Rs 70 crore, senior brokerage officials tried to dissuade Puri from taking further positions, or at least revisit his strategies, people with the knowledge of the conversations said. Puri’s response was typical of a trader who refuses to believe the market has moved against him. “Paise aapke hain ya mere?’’ he retorted. “It is none of your business; let the losses happen.’’
The trading and the losses continued after the brokerage ensured that the money for the transactions was coming from Puri’s own accounts, the people said. The three brokerage houses have said they adhered to rules requiring them to verify the antecedents of investors. Religare said it informed regulators when daily transactions exceeded prescribed limits. By all accounts, Puri was a valuable client at a time when the fee on options trading was wafer thin. One of the brokerages earned Rs 12 crore in less than a year dealing with him. Such was the pace and ferocity of trading that Puri shelled out Rs 8-10 lakh each day in the last three months as broking fee.
Puri, who was based in the Gurgaon branch, made large, unhedged bets on Nifty futures and options and obsessively stuck to his doomed trading plan despite being warned to change course, three people connected with transactions by the disgraced trader said.
“He was a novice with no clear strategy,’’ said a derivative analyst who pored through Puri’s trades to understand how the losses totalled up. “He was trading in volatility without the right amount of hedges and got hammered when the Nifty moved against him. Puri started out with a bad premise, and as most rogue traders do, he met his nemesis thinking that he could beat the market. It was foolish. ’’
Puri was arrested last week for peddling fake investment schemes that promised assured returns of 20-24 % to wealthy clients and companies such as Hero Corporate Services Ltd. Since ET NOW broke the story on December 28, market regulator Sebi, stock exchanges and other regulatory agencies have been investigating how the scam was perpetrated and the role of the brokerages he dealt with.
Puri’s trades unravelled during September and November when the Nifty and its underlying volatility was huge. The 50-share index’ movement between its highest and lowest levels was 723 points in September , when it closed at 6,030, gaining 11.6%, its best monthly gain since May 2009. Volatility in the index, which whipsawed, was much worse.
The Nifty reversed in November, when it fell just 2.6%, but still showed an intra-month movement of 648 points, or 10.2%. Puri’s ‘short gamma trades’ were on the wrong side each time, the people said. Such a trade involves writing call or put options. While a trader earns a fee for selling the option, his downside, if not hedged, remains unprotected if the index moves in the opposite direction. In Puri’s case, he faced huge margin calls on his derivative positions, the people said. In many other transactions, a vast majority of Puri’s index options expired as out-of-the-money trades, thereby reducing his premium paid to zero, they added.
Puri never traded in cash markets or took deliveries. He was “heavily leveraged,’’ one relationship manager at a brokerage said. “60% of the time his margin positions were so critical that we had to call him repeatedly to fund them.’’ On active days, and there were many, turnover from Puri’s leveraged transactions touched 1,000 crore, trading logs shown to ET NOW reveal. That is equivalent to the turnover of a mid-sized brokerage on Dalal Street.
Puri held accounts in at least three brokerages, among them Religare Securities, IIFL and Bonanza Portfolio. The first two declined to comment for this story. Bonanza Portfolio Chief Executive Shiv Kumar Goel did not respond to phone calls.
Puri’s trading losses exceeded Rs 100 crore with a Delhi-based broker-age, where he had two demat-cum-trading accounts. Once the losses exceeded Rs 70 crore, senior brokerage officials tried to dissuade Puri from taking further positions, or at least revisit his strategies, people with the knowledge of the conversations said. Puri’s response was typical of a trader who refuses to believe the market has moved against him. “Paise aapke hain ya mere?’’ he retorted. “It is none of your business; let the losses happen.’’
The trading and the losses continued after the brokerage ensured that the money for the transactions was coming from Puri’s own accounts, the people said. The three brokerage houses have said they adhered to rules requiring them to verify the antecedents of investors. Religare said it informed regulators when daily transactions exceeded prescribed limits. By all accounts, Puri was a valuable client at a time when the fee on options trading was wafer thin. One of the brokerages earned Rs 12 crore in less than a year dealing with him. Such was the pace and ferocity of trading that Puri shelled out Rs 8-10 lakh each day in the last three months as broking fee.
No comments:
Post a Comment