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CSE fiasco spares investors, hurts members

BS Bureau

It's a classic case of the failure of self-regulation, which has led to a human tragedy of appalling dimensions.

For the families of the thousands of brokers, sub-brokers and day traders on Lyons Range, the lapses of three major trading giants has started to threaten their survival.

The vast family of financiers, who survive by funding the badla trade inside and outside the stock exchanges, also face ruin. While badla outside the market has been wiped out, the 'official' badla is threatened by the payment crisis.

Several operators reportedly borrowed at cheap rates inside to lend at higher rates outside. This money has been washed away by losses on the kerb, threatening the very system. Alert financiers such as jute baron Arun Bajoria have already pulled out much of their funds from this business, partly adding to the funds shortage.

This has highlighted basic issues in the crisis. The uniqueness of the pay-in crisis at the Calcutta Stock Exchange (CSE) is that it has hurt the brokers themselves more than any other category of players in the market.

Said a past president of the bourse, "This crisis is totally different in nature from the scam that involved Harshad Mehta, because in the latter case, small investors suffered as much as brokers. This time, it is traders and speculators who have suffered."

Naturally, this has agitated the broking community to a great extent. The first problem, as the brokers themselves realise, is that the government may not bail them out as there is no public interest involved.

"I am sure the bourse's president will try to pass off this crisis by saying it was a systemic failure but the authorities have to chalk out a clear plan and a time-frame to reform the system," said the broker. Without reforms, the crisis faced by brokers and market dependents will only grow.

So upset are some brokers that, but for the intervention of a former bourse president at Monday's extraordinary general meeting, the two sections of brokers would have come to blows at the meeting, said CSE members present at the meeting.

This crisis has led to a positively bloodthirsty mood among a section of brokers. This group is determined to oppose any move by the CSE president and the committee to bail out the defaulting brokers by mortgaging the exchange building or other assets.

Thundered a broker who was reportedly extremely vocal at Monday's closed-door bourse meeting, "This group defaulted last year also through excessive speculation but we bailed them out. This time they should be punished."

The other demand is that those, whose failures led to the crisis, should be punished. "Every time there is a crisis, a committee is set up to brush the mess under the carpet, but this time the mess is big and we will demand that either members of the executive or the committee should own up and resign," said a broker.

Their ire is fuelled by a widespread belief that the bourse authorities failed to check that the big speculators maintained proper margins for their trades with the exchange.

This group was allowed to raise their exposure without the proper margins instead of having terminals suspended for the shortfall.

The leading operator, alleged brokers, had more than Rs 20 billion on the badla market yet his margin on the exchange was paltry.

For the brokers on CSE, the current crisis could not have come at a worse time. March is the end of the financial year and funds dry up during this time anyway as companies roll over badla funds to book profits. The crash in share prices and the payments crisis has coincided with this and made matters worse, said brokers.

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