JPMORGAN Chase and Nomura Holdings are limiting dealings with Simon Sadler’s Segantii Capital Management, the Asian hedge fund giant charged with insider trading by authorities in Hong Kong, according to people familiar with the matter.
New York-based JPMorgan will not engage with Segantii on new block trades and initial public offerings globally, some of the people said, who asked not to be identified discussing a private matter. The bank will also refrain from activities such as adding new positions with the hedge fund or providing it with more financing.
JPMorgan informed Segantii of its stance this week, said the people, adding the situation is fluid and could change. The bank is still doing some business with the hedge fund.
Nomura will not add more leverage or new positions to its dealings with the hedge fund for the moment, other people said.
Spokespeople for JPMorgan and Nomura declined to comment. Segantii declined to comment.
Global prime brokers with ties to Segantii have been assessing their positions with the 16-year-old firm, and deliberating internally if they should make any changes to their relationships, Bloomberg reported earlier this week. At least one other bank has decided to dial back dealings with the fund while the insider-trading case is pending, people familiar with the matter have said. Some others have no immediate plans to make changes, they added.
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Segantii has long been a prized client of Wall Street banks that need to unload chunks of shares in block trades and stock offerings. The firm listed nine banks, including JPMorgan, Goldman Sachs Group, BNP Paribas and UBS Group, as its prime brokers in a March performance update to investors.
Hong Kong’s Securities and Futures Commission last week commenced criminal proceedings against Segantii, Sadler and a former trader, Daniel La Rocca. The regulator alleged they had insider information when trading shares of a locally listed company prior to a block trade in June 2017. Segantii said it intends to defend itself vigorously against the charges.
Block trades are off-exchange, privately negotiated transactions involving large amounts of publicly listed shares.
Banks handling the sales have to be careful not to let investors get wind of upcoming deals ahead of time, and bankers often resort to gauging demand for a stock by asking hypothetical questions. Potential buyers can sometimes be given non-public information in a process dubbed “wall-crossing,” after they pledge not to trade on the privileged information.
Rather than sever ties or impose drastic curbs on their hedge-fund clients, prime brokers sometimes resort to more subtle measures – such as pricing their loans and services so uncompetitively that clients go elsewhere, according to two industry executives.
Sadler, a former trader at Dresdner Kleinwort Wasserstein and Deutsche Bank, founded Segantii in Hong Kong in late 2007 with US$26.5 million. The firm opened offices in London, New York and Dubai, and produced stellar investment returns from trading globally with a focus on Asia-Pacific equities and equity-linked securities.
The firm had US$4.8 billion in assets under management at the end of March. Its Asia-Pacific equity multi-strategy fund has had an annualised return of more than 12 per cent since inception, according to Segantii’s recent performance update. The fund was up 2.51 per cent in the first quarter of this year. BLOOMBERG
