Sucheta Dalal :Order book manipulation
Sucheta Dalal

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Order book manipulation  

Apr 2, 2007

The Integrated Market Surveillance System (IMSS) has helped the regulator detect a “possible order book manipulation scenario that existed in the trading engines of one of the two stock exchanges”. The Securities and Exchange Board of India (Sebi) informed its board of directors at a recent meeting that this problem is now being plugged, but omits to say whether the systemic hole has ever been exploited by market operators. Instead, its bland surveillance report claimed that IMSS alerts have been helping it detect abnormal trading activity and market behaviour and that 120 letters have been dashed off to market intermediaries, either cautioning them or seeking an explanation. It is not clear whether the Sebi board questioned this information, especially when recent data shows that India is the third most volatile market in the world. The board was also provided details of the embarrassing first day flare up (after a new listing or corporate restructuring/ merger/ demerger) in share prices of companies such as Ahluwalia Contracts (India) and AI Champdany, but not MindTree, which had such a dizzy post-listing run-up that even its management was surprised. Here too, there is no information about large traders who may have ramped up the shares like in the Nissan Copper case. Sebi has merely asked the two national bourses not to relax first day circuit filters until they evolve a common policy for implementing price bands. Ironically, these cases of market manipulation have been glaringly evident to ordinary traders even without the benefit of an expensive and sophisticated surveillance system. The regulator is surely expected to be able to provide a lot more than mere price trends to its board.

Action time

Institutional shareholders of the Stock Holding Corporation of India (SHCIL), which include SUTI, LIC, IDBI, IFCI and GIC (who together hold over 51 per cent of its equity), have finally bestirred themselves to ask a few questions about the many subsidiaries it has spawned and their quiet subsequent privatisation. According to an institutional source, “at SHCIL’s 18th Annual General Meeting on 31st August, 2005, it was permitted to pump up to Rs 50 crore in SCHIL Service Ltd (SSL), so why the dilution without informing institutional shareholders?” The source says that shareholders are finally beginning to work out the value of their shareholding in SHCIL. For instance, they want a watch on SHCIL’s holding in the National Stock Exchange (NSE), which is now valued at around Rs 1000 crore. They are worried about the implications of SHCIL’s many quiet moves without informing its shareholders and the presence of charge-sheeted employees among top executives. A few BSE brokers are also questioning the large allocation of space in the BSE towers to SSL, based on the assumption that it is an institutional member. As we have revealed recently, 76 per cent of its equity is held by private entities. There is also growing speculation about the reason for the regulator’s curious silence over developments at SHCIL inspite of the sensitivity of its market operations.

Active surveillance

With stock prices looking wobbly, the promoters and large shareholders of certain companies are apparently getting ready to dump their stocks and book a profit. The two depositories have suddenly started receiving orders for dematerialisation of a large number of physical shares. Following a discussion with the regulator, the depositories have been asked to keep stock exchanges informed so that they can keep a watch on the price and volume movement of such companies. All this is part of the decision to launch ‘active surveillance cells” at both depositories following the demat scam, which is still in the process of being implemented. Ironically, nearly six months after Sebi inspections revealed that some investors have been dematerialising and rematerialising the same set of shares several times over, and paying up the costs involved in the process, the regulator is yet to get to the bottom of this issue too.

Delayed merger

Meanwhile, the rumbling and discord over the grand alliance between PricewaterhouseCoopers (PwC) and RSMama (RSM) has led to a postponement of the effective merger date to April 15. Both sides continue to work furiously to salvage the deal. We learn that Ketan Dalal of RSMama has been invited to the Partnership Oversight Board and there is also talk of PWC guaranteeing the income of RSM for three years — obviously this is not well received by PwC people. Moreover, Deepak Kapoor did not get the requisite consensus to be appointed managing director at Friday’s board meeting chaired by Rathin Datta at Kolkata. The election of partners scheduled for April 27 is now likely to be hotly contested. If all this were not bad enough, the Institute of Chartered Accountants of India (ICAI) — a sleepy club when it comes to disciplining its members — has finally turned hyperactive in the Global Trust Bank (now merged) case. It has apparently hit PwC with show cause notices running into hundreds of pages seeking the names of partners responsible for the bank audit.


-- Sucheta Dalal