India (SEBI) announced a ban on short sales
MUMBAI, March 7, 2001
THE Bombay Stock Exchange President, Mr Anand Rathi, today said he had decided to resign from his post.
In another development earlier in the day, the Securities and Exchange Board of India (SEBI) announced a ban on short sales to arrest a fall in scrip values.
Mr Rathi's offer to resign comes in the wake of allegations of his involvement in the recent volatility in the stock market.
There were also rumours that Mr Rathi was asked by the Securities and Exchange Board of India (SEBI) to step down owing to his large outstandings in the market and alleged attempt to interfere in the exchange's surveillance department. The SEBI chairman, Mr D.R. Mehta, and BSE officials declined to comment.
The BSE board is expected to meet tomorrow to review the developments.
Mr Rathi, whose second annual term as the BSE president was to expire by March-end, becomes the second chief of the exchange to face the regulator's axe in recent years. Mr J.C. Parekh had been asked to step down in 1999 following the alleged rigging in share prices of BPL, Sterlite and Videocon.
Mr Rathi, in a written statement late in the evening, said that he was deeply hurt by the serious allegations made against him. In order to maintain the dignity of the office of the BSE President and maintain high standards, he had decided to offer his resignation, he said.
"I would like to place on record that neither I nor any of the office-bearers have ever been involved in anything that is against the ethical standards laid down by us," the BSE chief said.
Incriminating tape seized
In an informal chat earlier in the day, the SEBI Chairman, reacting to reports, said that a tape with incriminating evidence had been seized by SEBI.
Mr Mehta said that SEBI has in its possession a hard disc which it had yet to transcribe. "We are looking into the issue and once we ascertain the facts, we will let you know," the SEBI chief told reporters.
He denied that there had been any conversation on the issue between him and the BSE chief. "At this moment, all I can say is that we have not received any letter from him on this issue, nor have we asked him to step down."
Commenting on the fact that the BSE has not been issuing the routine daily open positions of scrips, SEBI officials said the regulator had looked into the issue. "We were informed that it was a technical problem at the exchange end and that it would resume this by next week," the officials said.
Mr Mehta said that in order to prevent a repeat of such a scenario, it was essential that the system shift away from broker-run exchanges.
Short sales banned earlier in the evening, SEBI announced its decision to put a ban on naked short sales with immediate effect in a bid to arrest a further fall in stock prices.
This means, all sales transactions effective from tomorrow (Thursday) must be backed by delivery unless a sales transaction is preceded by a purchase position of at least an equivalent amount in the name of the same client in the same or any other exchange.
This will also apply to proprietary trading by members. This will be on a self-certification basis and will be subject to exchange off-site inspection up to the sub-broker and client levels.
The exchanges must share information to facilitate the verification. It would be applicable to scrips in the modified carry-forward system, Automated Lending Borrowing Mechanism (ALBM) and Borrowing and Lending Securities Scheme (BLESS) and other deferral products.
The decision was taken after a day-long meeting of SEBI's risk management group.
The SEBI Chairman said it was a temporary measure and would be reviewed after two settlements. This is the second time that the regulator has banned naked short sales.
"Given the current market scenario, we had no choice. What we are saying is that one cannot square off a sale position," Mr Mehta said.
It was agreed by the group that the current margining system will be moved to the value at risk (VAR) scrip-wise model from July 1, 2001. Some modalities have already been outlined and would be finalised by the sub-group already constituted under the risk management group headed by Prof J.R. Varma, SEBI board member.
VAR captures the prospective volatility of a portfolio for a member and then captures it in the form of margin.
The regulator also reiterated that the exchanges were not facing any settlement problems and said that the trade guarantee fund (TGF) and the settlement grantee fund (SGF) of all exchanges are guaranteeing all trades including trades of MCFS, ALBM and BLESS.
"There is no systemic failure of any kind at all, no broker default," Mr Mehta said.
As per SEBI data, the TGF/SGF of BSE, NSE, Bangalore Stock Exchange, Ludhiana Stock Exchange, DSE and CSE aggregates to Rs 5,700 crore. Daily margins of all exchanges plus their additional capital with exchanges amount to around Rs 6,400 crores.
Source: blonnet.com
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