Sucheta Dalal :JPC and ALBM (25 February 2002)
Sucheta Dalal

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JPC and ALBM (25 February 2002)  

If you were you at the Joint Parliamentary Committee’s (JPC) recent hearings you would have thought that Ketan Parekh and others responsible for the stock market collapse of 2000-2001 had been exonerated. Instead, several JPC members were entirely focussed on Reliance Industries’ withdrawing Rs 1,200 crore from the National Stock Exchange’s Advanced Lending and Borrowing Mechanism (ALBM). In fact, Reliance had withdrawn funds from the Bombay and Calcutta Stock Exchanges too.

It is, of course, perfectly legitimate for the JPC to agitate about corporate houses diverting funds to the market for price ramping and manipulation–but then it should call them for interrogation instead of training their guns at dead trading mechanisms. Their efforts are most amusing and hopefully, after all the fury and the thunder of interrogation, someone sensible will sit down to write the JPC report. At that time, it will become painfully obvious that there were no malafides involved in introducing ALBM. The JPC can, at best, charge Sebi with not being careful enough, that too in hindsight.

The ALBM was not only cleared by Sebi, but it set up a committee under Prof J.R. Varma to examine the product and to tighten the margining system. It then went on to issue a circular which made the ALBM a generic product that could be introduced by all stock exchanges, subject to the same rules and margin conditions. The ALBM and its look-alike BLESS have long been dead and the market has moved on to rolling settlements and derivatives –on the other hand, corporates using money power to mess around in the market has not stopped.

(Incidentally, there is complete silence on Ketan Parekh’s bail condition, which required him to pay the first installment of Rs 20 crore plus to Madhavpura Coop. Bank last week).

Universal ramping

The steady rise in ICICI and ICICI bank stocks is openly being labelled a ‘market operation’ by capital market circles. While everyone seems to know exactly how much the price will be ramped up, punters are curious about what exactly will be the ‘good news’ that will provide an exit route to those who are ramping up the price.

One story is that ICICI is expected to find a magic remedy for its substantial bad loans by taking control of the Asset Reconstruction Companies (ARCs) which are being funded by public sector banks at the behest of the Banking Department. But market operators may be counting their chickens prematurely. Banks are unlikely to give up control of ARCs without a fight, they are also accountable to their shareholders. Hopefully, the fear of a stink will prevent the government from trying to commandeer bank funds to bail out extravagant and high cost institutions that too in the private sector.

Floundering bourses A year ago, the capital market went into a tailspin, despite a ‘path-breaking’ Union Budget, because the reckless speculation by Ketan Parekh and his corporate sector buddies had gone out of control. The investigations that followed saw Sebi forcing broker directors to quit from many governing boards.

A year later, it is almost status quo—brokers are back on the boards but not as office bearers. Will the new system end brokers’ penchant from meddling with supervisory functions of bourses? It remains to be seen. It may well be that the decision to de-mutualise bourses, which could not be taken up during three successive board meetings would finally be cleared by the regulator and change the composition of stock exchange administration again.

Ripping up Enron

This one’s from the Washington Post: With so many top Enron executives pleading the fifth amendment and refusing to testify at the US Congressional hearings, almost any blame game seems plausible when it comes to Enron these days. Take the Internet send up of those Sprint PCS ads that blame “bad cellular” for laughable miscommunications. Here’s the Enron version: “The Arthur Andersen partner said, ‘Ship the Enron documents to the feds,’ but the secretary heard, ‘Rip the Enron documents to shreds’.”

Yes, it’s a joke. But not everyone is laughing.

Tailpiece: Here is one from the internet by reader S.K. Gupta.

Momentum Investing: The fine art of buying high and selling low.

Value Investing: The art of buying low and selling lower.

Broker: Poorer than you were in 1999.

Price/Earnings ratio: The percentage of investors wetting their pants as this market keeps crashing.

Standard & Poor: Your life in a nut shell.

Stock Analyst: Idiot who just downgraded your stock.

Bull Market: A random market movement causing an investor to mistake himself for a financial genius.

Stock split: When your ex-wife and her lawyer split all your assets equally between themselves.

Market Correction: The day after you buy stocks.

-- Sucheta Dalal