T-to-T: the manipulators’ roadblock  

September 29, 2003

This time stock exchanges and the capital market regulators objectively analysed trading data to claim down on the manipulation of stock prices. This column appeared in Divvya Bhaskar (of the Dainik Bhaskar group in Gujarati on September 29,2003).

T-to-T:  the manipulators’ roadblock

By Sucheta Dalal

Few things in a capital market are as stale as a former bull operators’ comeback attempt. The late Harshad Mehta tried it in 1998 with BPL, Videocon and Sterlite and failed so badly that he even dragged down the reputations of the Bombay Stock Exchange (BSE) and the Securities and Exchange Board of India (Sebi) with him.

This time around, in the middle of the biggest bull run since Harshad Mehta 1992 dream run, neither Sebi nor the stock exchanges are taking any chances.

The regulators have clamped down on scrips at the first signs of organised price manipulation. The first to be hit were 200 odd scrips that were moved to the Trade-to-Trade (T-to-T) segment in mid-September. Together these scrips had a turnover of under Rs 10 crore but low floating stock and extremely low prices had made them easy targets for manipulators.

Then another category of scrips began to show some upward action.  For instance, the Tehelka-connected stock broking firm, First Global’s issued a research report probably from overseas, recommending Himachal Futuristic Communications (HFCL) a  “strong buy” and the “biggest turnaround story in India”. This is the same HFCL for which First Global had made a controversial private placement in 1999. Obviously, those behind HFCL’s promotion probably hoped that investors have a short memory. And that investors would forget that the same Shankar Sharma and First Global had once recommended completely shady companies such as Vikas WSP and pushed the scrip to incredible heights.

Their assumptions were correct. HFCL had indeed begun to shoot up.  And so had several other scrips that were once part of the K-10 portfolio. But the regulators have not been idle. However,  SEBI and the stock exchanges cannot single out companies because of their past proximity to Ketan Parekh. And they didn’t.

Instead, Sebi analysed trading data very minutely to track unusual trading patterns. It then identified scrips that had very little institutional interest, showed concentrated trading activity by a few brokerage firms and reported high trading volume of over Rs five lakh shares per day. The regulators also looked for other developments, such as large-scale conversion of GDRs into domestic equity etc.

A long list of such scrips was drawn up. SEBI then eliminated from it those scrips that formed part of the major stock indices (NIFTY and Sensex) and the 40 scrips that were opened for derivatives trading.

And guess what they were left with? The entire K-10 list, barring one scrip. They include: Aftek Infosys, SSI, Kopran, Lupin, Silverline Technologies, Pentamedia Graphics, HFCL, GTL and Global Trust Bank

The regulatory action has created enormous panic in certain circles. But not among genuine investors. Those running scared are mainly operators in the illegal market who were involved in unofficial badla trading in some of these scrips.

According to my sources, a fairly large illegal badla market had developed in HFCL in the Kolkata market and operators who traded in that market have been badly hurt.

As for genuine investors, day traders and savvy speculators-- they simply forgot about the nine T-to-T scrips and switched their attention to those where the action was.  The result:  an awesome 125-point rise in the benchmark Sensex to 4356.39; the second highest single day rise in this calendar year. A development, which proves, that effective stock market regulation can often check price manipulation at the very beginning. 

Predictably enough, not everybody is happy with the regulatory action. A couple of companies have been quoted by a business newspaper saying that they would examine legal action against the regulator’s decision. That is indeed a strange reaction.  If Sebi and the stock exchanges have moved certain stocks to the T-to-T segment is no reflection on the quality of management, nor does it suggest their involvement in the price manipulation. So why should companies be aggrieved at regulatory action that protects their investors from reckless manipulation?

Could it be the fact that many industrialists connected with these companies were in fact extremely close to bull operator Ketan Parekh in 1999-2000, but managed to evade punitive action? 

The regulatory move to shift volatile scrips to the T-to-T segment has another  positive implication for the broader market. Price manipulators, whether in penny stock or the more notorious high profile scrips, can no longer be certain that the transfer of scrips to the T-to-T segment would suddenly halt their party. This fear will prevent hoards of greedy small investors from blindly following scamsters and manipulators, in the hope of making quick money. And hopefully it will make it that much more difficult to manipulate stocks on the Indian market.

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