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Sebi to move against brokers over crash: Mehta

Fakir Chand in Bangalore

The Securities Exchange Board of India (Sebi) is likely to take action against some brokers for their alleged role in causing a sudden crash on the trading bourses last Friday after a two-day bull run, triggered off by a market-oriented budget.

A dramatic plunge of 176 points by the BSE Sensex on the 'black Friday' last week has set off alarm bells in the secondary market, forcing the regulatory body (Sebi) to launch an inquiry into the suspected role of at least five brokers, four in Bombay, and the fifth in Calcutta, leading to a panic selling during the trading hours.

Announcing the decision to order such a probe, Sebi chairman D R Mehta disclosed to the media in Bangalore during the week-end that the board would review on Monday the entire situation arising out of the collapse of the market to take remedial measures, such as action against the `bear cartel, which include a couple of foreign financial institutions.

"It was unusual to notice a sudden turn in the market sentiment after a two-day bull run in response to the positive and growth-oriented budget. Since we have felt something amiss, investigations were launched on Saturday after issuing notices on Friday night itself by a joint team of Sebi, BSE, and NSE officials," Mehta revealed.

Though the Sebi chief had not disclosed the names of the brokers and the FIIs behind the bear cartel, it is learnt that the books of leading Bombay operators R S Damani, Nirmal Bang and Ajay Kayan were being inspected for short selling. Even the role of foreign brokers like Morgan Stanley Dean Witter and Credit Suisse First Boston has come under scrutiny.

Declining to say what action would be taken against the guilty, Mehta said the meeting on Monday may review the existing daily margin levels for sustaining them on long-term basis and minimise the kind of volatility witnessed in the recent past.

Asked whether the crash was a part of the global trend witnessed on that day as a result of similar plunges on Asian bourses and a steep Nasdaq fall on Thursday, Mehta said the behaviour of the markets depended on several factors, and not necessarily on account of a global trend.

"It is too early to say that the Indian capital markets have fully integrated with global markets, or with their counterparts in the Asian region in the absence of full capital account convertibility.

Institutional players too have a large role to play. Their quick moves of buying and selling can also lead to volatility on the secondary market," Mehta asserted.

With institutional players like FIIs, Indian financial institutions and mutual funds (MFs) calling the shots in the secondary market, Mehta said Sebi was constantly monitoring the situation and taking measures to protect the retail investors, whose active participation in direct trading has taken a beating.

"Since the confidence of small investors depends entirely on the regulatory body, Sebi is initiating several reforms to safeguard their money and interests even as the Indian stock markets get more institutionalised.

According to a study conducted by the National Council of Applied Economics and Research (NCAER) on behalf of the board, a record 20.3 million investors trade in securities through the MFs, and around 10.9 million retail investors participate directly," Mehta affirmed.

Following the reduction in dividend tax and exemption of capital gains tax on funds to be invested in primary issues, Mehta said the MFs alone would be raising about Rs 800 billion this year. "Retail investors are expected to bring another Rs 120 billion," he claimed.

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