Sucheta Dalal :Boosting turnover (11 August 2002)
Sucheta Dalal

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Boosting turnover (11 August 2002)  

A stock exchange is the nerve centre of a free market. But the Bombay Stock Exchange (BSE), in typical Indian style, seeks an artificial boost from government. Having lost its premier position to the National Stock Exchange (NSE), the BSE wants its turnover boosted by merging all regional bourses with it. According to a television channel, this demand is based on the strange charge that ‘government’ wants only one bourse in the country, which is presumably the NSE. But the finance ministry as well as the capital market regulator are completely surprised at this, especially because the BSE has nobody to blame for its falling turnover but itself. Moreover, it is not quite clear how the merger of bourses will help the when regional exchanges, barring the Delhi, Calcutta and Ahmedabad bourses, have no turnover of their own. They remain afloat due to subsidiaries, which are trading members of the BSE or the NSE. In fact, the government wants at least two strong stock exchanges in India to ensure competition and choice for investors; but the BSE will have to compete on merit and not look for a turnover infusion through the merger of defunct regional bourses.

Back full circle

The BSE’s demands do not stop at turnover infusion. The BSE Brokers Forum has proposed a margin trading system, which smacks of the revival of badla trading of yore with a few modifications. The Securities and Exchange Board of India (Sebi), we understand, has turned down the proposal because it envisages private funding of margin trading under the head ‘non-institutional’ funding. Sebi is also negative about any model which envisages that the clearing corporation will guarantee repayment of money lent for margin trading. The regulator is understood to have indicated that unless the brokers come up with a separate guarantee mechanism for margin trading, it is in no mood to consider a quasi-badla model even if it is more transparent and screen-based. Moreover, until the Joint Parliamentary Committee (JPC) completes its report and expresses a view on the NSE’s now defunct Advance Lending and Borrowing Mechanism (ALBM), it is unlikely that the Modified Margin Trading System (MMTS) pitched by the BSE brokers forum will receive serious consideration.

A $250 million issue

The increase in international in steel prices has seen an increase in the secondary market price of Essar Steel’s outstanding $250 million Floating Rate Note (FRN) issue. The FRNs have been languishing after Essar defaulted on the $250 million issue and failed to present a proper restructuring plan or to pay interest or overdues. Three of its FRN holders then filed winding up proceedings against the company in the Gujarat High Court, forcing Essar to take shelter under the obscure Bombay Relief Undertakings Act. The court gave Essar a reprieve, but only till April 2003. The company then planned to borrow from Bank of India and buy out the FRNs at a discount. But an international investor tells us that its secondary market price has increased substantially since June. Most FRN holders are now seeking well over market rates. As for the primary litigants who sued Essar, they are ‘unwilling’ to settle and expect to collect after April 2003 when the ‘stay’ granted by court expires.

Aiyer’s chapter

Has Mani Shanker Aiyer really written the draft chapter on Sebi’s investigations following Budget 2001? Excerpts that were reported by a pink daily sound suspiciously similar to charges made by a broker who is under investigation by all the regulators. More interestingly, Aiyer (if he indeed wrote the chapter) seems to have his facts wrong. He has reportedly claimed that Sebi relied on advice of former BSE president Anand Rathi about whom to investigate. This is untrue. The names of brokers who came in for initial scrutiny were provided by officials of the BSE’s surveillance department and not the former BSE president. These names were based on market position and the officials had no axe to grind with any particular broker. Also, it was well before Tehelka added a new dimension to the investigations. How would Aiyer, a JPC member with direct access to facts and testimony, make these mistakes? Also, if Aiyer argues that the post-Budget (2001) fall in the market had nothing to do with a stock market scam then maybe he would like to tell us why his party demanded the setting up of a JPC in the first place.

-- Sucheta Dalal