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Sebi bans UBS Securities for one year
May 17, 2005 17:29 IST
In a first action against those involved in May 17, 2004 market crash, the Securities Exchange Board of India prohibited UBS Securities Asia Ltd, a foreign institutional investor, and its associates from issuing offshore derivative instruments with underlying Indian securities for one year.
UBS, its affiliates and agents are prohibited from renewing or rolling over any of the ODIs already issued against the positions held by it in the Indian securities market for one year, SEBI whole-time member G Anantharaman said in his order in Mumbai on Tuesday.
The capital market watchdog asked UBS to establish highest standards of customer due diligence process in line with the requirements of FII regulations of SEBI.
UBS was a significant participant in the cash as well as the derivatives (F&O) segment of the Indian securities market during May 2004.
One year ago -- 565 pts! 2nd largest Sensex fall
It was suspected that the steep market fall on May 17, 2004 could have been triggered as a result of UBS trading, accentuating the selling pressure for no reason linked to the fundamentals of scrips or their performance.
SEBI decided to ascertain the details of ultimate beneficiaries to whom the ODIs were issued by UBS/its affiliate and whose transactions resulted in the large-scale sale by UBS on May 17, 2004.
In an indictment of the UBS, SEBI said the FII failed to maintain high standards of integrity, fairness and professionalism in dealings in Indian securities market with the regulatory authority.
It did not exercise due diligence in dealing with its clients and with the regulator. It has failed to maintain appropriate level of knowledge and competency and abide by the provisions of the Act and regulations, rules.
UBS has made 'untrue' statements and 'suppressed' material facts in the documents, reports and information furnished to SEBI, while seeking to wriggle out of the regulatory requirements imposed upon it.
FII has failed to comply with the relevant clauses of the code of conduct as applicable to overseas investors.
It was found that on May 17, 2004, UBS Securities Asia Ltd dealing through its SEBI registered proprietary sub-account Swiss Finance Corporation (Mauritius) Ltd sold in the cash market segment to the extent of Rs 188.35 crore (Rs 1.883 billion) gross.
As on May 14, 2004, the equity portfolio of UBS was to the tune of Rs 2,956 crore (Rs 29.56 billion).
As on May 14, 2004, it had built up Nifty Futures short positions to the tune of Rs 434 crore (Rs 4.34 billion) and stock futures short positions to the tune of Rs 292 crore (Rs 2.92 billion). Thus, UBS was a significant participant in the cash as well as the derivatives (F&O) segment of the Indian securities market during May 2004.
On May 17, 2004, there was steep fall in the Indian stock market -- Sensex fell by 567.74 points; Nifty fell by 196.90 points; Intraday Sensex feel by 842 points.
SEBI said such a steep fall in the stock market resulted in temporary stoppage of trading twice on major stock exchanges -- BSE and NSE -- during the day.
It was unprecedented in the recent history. In view of the crash in the Indian securities market on May 17, 2004, SEBI examined the dealings in securities by various entities on May 17, 2004 duly taking into account the developments in the Asian market.
It was suspected that the said gains might have accrued to UBS due to unprecedented wave of sale in the cash market with its cascading effect of depressing the cash and futures market, with the concomitant favourable impact on the short positions in the futures segment held by it.The data obtained from UBS reveals that, while UBS incurred a loss of Rs 17.54 crore (Rs 175.4 billion) on May 17, 2004 on account of its sale in the cash segment, its short positions in futures (derivative) segment earned it a mark to market credit (amounting to the profits earned on account of the short positions in the futures segment) of Rs 59.37 crore (Rs 593.7 million) resulting in a net gain of Rs 41.83 crore (Rs 418.3 million).