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Nearly 70 CSE brokers default

Kausik Datta & Aniek Paul

The Calcutta Stock Exchange experienced the worst ever default in terms of spread as close to 70 brokers failed to meet their payment obligations in the pay-in that took place on Thursday night.

The stock exchange withheld payment of about Rs 1 billion on grounds that the trades appeared to be 'dubious'. CSE sources said that this was in line with instructions of Sebi.

CSE sources said nearly 70 members were announced defaulters as money was brought into the system by invoking bank guarantees, of the brokers concerned, kept as their base capital with the bourse.

Lyons Range sources said a large number of brokers did not bring in their pay-in obligation apprehending that the amount might be mismanaged in the prevailing chaotic situation. After realising that the authorities would encash their bank guarantees, some of them rushed to the bourse.

CSE, however, did not give any breather to them and proceeded with its decision of invoking bank guarantees.

Sources said the Sebi team, which has been going through the trading details on CSE, found a number of 'dubious' trades, including some short sales by a Bombay-based broker having membership of a couple of international exchanges, and, therefore, ordered the bourse to withhold the receivable amount.

Excluding this, the shortfall in the settlement came down to a 'manageable amount' and the exchange released payments on Friday.

Dinesh Kumar Singhania and Ashok Poddar had a combined outstanding of Rs 870 million in the settlement, which was partially met by encashing their bank gurantees. Harish Biyani, who had a payment obligation of over Rs 200 million, was declared defaluter on Thursday.

CSE has also recorded shortfall in delivery of securties, despite deferment of the deadline by five hours on Thursday. CSE on Friday auctioned shares worth Rs 70 million. The auction amount was quite high against the usual Rs 7-8 million.

Sources said CSE decided not to debit the settlement guarantee fund because the amount that could be generated was too low to handle the situation. Under the Sebi norms, an exchange can liquidate only 20 per cent of the SGF in a year, which, in case of CSE, would have been less than Rs 200 million.

Lyons Range sources said the CSE move to meet payment obligations of defaulting brokers by encashing bank guarantees would reduce their exposure limits. This would result in a fall in trading volumes on CSE.

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