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BSE's corporatisation will come under a cloud

NetScribes/Salil Panchal

The Anand Rathi episode could dent the Bombay Stock Exchange's attempts to shrug off its image as an organisation run by a bunch of brokers and be perceived as a professionally managed corporate set-up.

Rathi resigned as BSE president on Thursday. Deena Mehta has stepped in as acting president till elections to the BSE board are held in early April.

Rathi was accused of misusing his position to garner information from the BSE's exchange surveillance mechanism for personal gain. He had allegedly sought information on positions of brokers in scrips like Himachal Futuristic and Global Tele-Systems.

The episode has shades of insider trading, which takes place when those privileged to access sensitive information on companies use it for their benefit -- either in terms of buying or selling shares of the concerned company or abetting others to do the same.

The Securities and Exchange Board of India has long been seized of the matter and sought ways to curb such misuse. But most of the market watchdog's attempts to unearth such occurrences have met with little success as they are difficult to prove.

The BSE's reputation as an organisation run by a closely-knit group of brokers seems to have aided Sebi's crusade. In 1998, then BSE president J C Parekh was also forced to quit after suspected involvement in the tinkering of margins in specified group -- a group where speculation is possible -- scrips like Sterlite, BPL and Videocon International.

Is this a Sebi-BSE battle?

The issue is not as clear-cut as it appears to be. If curbing misuse of power is what Sebi is interested in, a few questions beg answers:

• Why has Sebi so far not taken any action (in terms of confronting Rathi or the exchange) on the alleged taped conversation between Rathi and a BSE surveillance officer?
• Why has a BSE president once again been linked to the internal functioning of the BSE surveillance and monitoring system? Should every decision not be left to the surveillance team?
• Why has Sebi delayed the implementation of the code of ethics for stock exchange governing board members? (Sebi insiders say it is likely to be implemented on April 1, 2001.)
• Will there be stronger accountability for Sebi? Who will govern the regulator?

Rathi issue to take its toll on BSE

While such questions may remain unanswered, it is clear the BSE will be the loser in this battle.

After Rathi's exit, the exchange's Vision 2005 -- which aims at making the BSE an investor-friendly, restructured corporate entity -- has been thrown into jeopardy

The exchange has already shelved its plan to set up an independent clearing corporation -- the organisation where securities are cleared between brokers -- saying it would be financially unviable at this stage.

With the ongoing Sebi crusade creating a deep impression on investors, the exchange's corporatisation plans will come under a cloud.

The BSE is working towards a system similar to the National Stock Exchange, where a group of professionals runs the show with a managing director as its head.

If corporatisation does not happen, the BSE will lose its last chance to become India's premier stock exchange in terms of trading volumes, trading transparency and overall monitoring.

BSE to fight it out

The BSE does not plan to take the allegations lying down. "These are tough times, but we will fight it out,'' Mehta told NetScribes. She declined to comment on what the outcome of the possible Sebi inquiry could be.

BSE Deputy Executive Director Manoj Vaish said it was ridiculous to attribute the payment crisis to one man. "To say that Rathi misused his position to get information on the basis of a mere allegation in the media is immature, especially in the absence of any proof that it has been taken for personal benefit,'' he said.

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