Suspecting price manipulation in shares of some newly-listed firms and of those having raised overseas loans, market watchdog SEBI is probing the role of at least 25 entities, which includes the company promoters, and certain brokers and merchant bankers.

The Securities and Exchange Board of India (SEBI) is also probing the possibility of cartelisation among the company promoters, brokers and merchant bankers for rigging the price during the initial public offers (IPOs) and the post-listing trade of shares of their companies.

Separately, SEBI is probing the role of the promoters of some other firms having raised overseas loans through FCCBs (Foreign Currency Convertible Bonds) for any insider trading in their company stocks, sources in the know said.

The regulator is separately investigating the two matters -- the one concerning shares of newly-listed firms and the other about the stocks of companies having raised FCCBs -- but it fears that the promoters and other market entities might have made unscrupulous gains at the cost of unsuspecting retail investors in both the cases.

SEBI suspected a foul-play in the market after its risk management system noticed wild fluctuations in the share prices of some companies and initial investigations showed that these firms were either newly listed ones or those reportedly facing redemption problems with their FCCBs.

Subsequently, the regulator expanded its probe and has questioned a wide range of people, including officials from some brokerage firms, merchant banks and the promoter entities of the concerned companies, a senior official said.

The investigations are continuing for quite a few weeks now and the regulator has narrowed down its probe to 25-30 entities for possible action, another official said.

He did not disclose the names of the suspected entities, or that of the concerned companies, citing these as price-sensitive details for the market.

However, the official said that the probes concerned mostly small and mid-size listed companies, while the brokerage and merchant banking firms under the scanner were also newer and relatively smaller ones.

The promoters are not found to have been at fault in all the cases and the probe also indicated at natural price fluctuations in certain stocks, he added.

Explaining the suspected modus-operandi in these cases, a senior industry official said that the promoters could have connived with the merchant bankers and stock brokers to garner sufficient demand to make their IPOs successful and then sell the shares immediately after the listing.

In some cases, the share prices could have been rigged on the listing day to attract unsuspecting retail investors into buying them and then the entities having purchased the shares during the public offer could have offloaded them, he added.

In the case of the companies having raised FCCBs, the promoters could have used their privileged insider information for selling the shares, either directly or through other market entities like brokers, before the public investors got to know about any redemption pressure for these loans.

The regulator is also suspecting a foul-play by companies in disclosing the correct use of the funds raised through IPOs and FCCBs, and would write to the relevant government departments if it comes across any irregularities in these matters, the official noted.

Interestingly, some of the biggest scams in the Indian stock market in the past have been related to the IPOs or trading of newly listed companies, while there have also been cases of price manipulation in shares of companies with foreign listing of GDRs (Global Depository Receipts).

SEBI chairman U. K. Sinha recently said that the regulatory authority is going for a complete overhaul of its IPO norms and has set up a new advisory group to review the existing process.

He had also said that the SEBI would look into the kind of penalties that could be imposed for any irregularities, and was also working on a mechanism to curb any manipulation in first-day trading of shares.