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Sebi show-causes culprits, threatens to snap licences

BS Markets Bureau

The Securities and Exchange Board of India on Wednesday warned stock exchanges and the broking community that attempts to create trouble by punching absurd prices would lead to suspension of licenses.

Trading on the National Stock Exchange was brought to a halt exactly 33 seconds after start as rogue trades in Reliance Petroleum and ACC sent the Nifty rocketing to 1494.60 points, a rise of 39 per cent over Tuesday's close.

The capital market watchdog also issued show-cause notices to members who have indulged in the rogue trades since Monday.

"We are taking a very serious view of this attempt to create an artificial market," Sebi executive director Pratip Kar said.

Sebi took stock of the situation on Wednesday at a meeting with bourse representatives, which was originally called to ensure smooth pay-in and pay-out on July 9, the first settlement day under the new rolling regime. (Trades executed on Monday, July 2, have to be settled on Monday, July 9 -- that is, at the end of the T+5 settlement cycle).

"We suspect that it was intentionally done in order to create an artificial market," said Kar in reference to the deals being struck at Re 1 (ACC) and 50 paise (Zee Telefilms) as well as disruption in NSE trading on Wednesday.

When asked whether Sebi anticipated these events in the absence of price bands, Kar said, "No."

In order to avoid a repeat of such trades, Sebi has told the stock exchanges to introduce a system of checks and balances based on price and quantity validation at order levels.

Based on the individual stock exchange's experience with a particular scrip's prices, volumes and volatility, it would take action if deals are struck at unusual levels.

"If a scrip normally trades at Rs 500 but has been known to go up to Rs 1,000, executing a deal at Rs 3,000 is preposterous," Kar said.

The system should verify quantity and price beyond certain limits as may be prescribed by stock exchanges for different securities.

The order should then be examined by stock exchanges before permitting its execution. This would be applicable to all the 53 securities on which there are no price bands.

These are the securities on which scrip-based options are available and are included in the Bombay Stock Exchange Sensex and the NSE S&P SNX Nifty (on which futures & options are also available).

Bourses have been told to make the necessary changes in their software.

Sebi has asked them to take a relook at the deals, which took place at abnormal prices in BSE and NSE on Monday (exchanges have already issued show cause notices to the members).

With respect to the trading halt in NSE Wednesday the exchange has been asked to identify and deactivate the terminals of those responsible for creating the artificial boost in the index as well as those indulging in deals at abnormal prices.

"They will be referred to the disciplinary committee of the exchange and if investigations reveal that there was a deliberate malafide intention then they can end up losing their licenses," Kar warned.

It was also decided that pay-in of funds and securities under rolling settlement will be effected before noon on settlement day so that the pay-out of funds can be executed during the banking hours of the same day.

At present, while some companies distribute dividends directly to the bank accounts of investors, others don't. There have also been some complaints about wrong encashment of such dividends.

To avoid this, Sebi would issue a directive to companies and stock exchanges asking them to credit dividends and other benefits directly to the bank accounts furnished by the depositories.

On margins under the new VAR system, Sebi has decided that the issue would be taken up at the meeting of the group on risk management to be held on July 13.

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