SEBI ban on short sales

MUMBAI, MARCH 7. In a move to contain the `bear grip and market rumours', the Securities and Exchange Board of India has imposed a temporary ban from tomorrow on short sales for scrips in the ALBM (automatic lending borrowing mechanism), BLESS and modified carry forward systems (MCFS).

All sales would have to result in delivery unless the sale position is preceded by purchase of same value of the same scrip in the same name and would remain in force for two settlement cycles, SEBI chairman, Mr. D. R. Mehta, told newspersons after the meeting of the risk management group.

The move comes in the wake of the unusual rise and fall of the Sensex two days after the budget. But Mr. Mehta justified today's decision and said even in developed markets short sales were banned on bearish trends.

The sale order can be given by borrowing the scrips from the market, SEBI member, Mr. J. R. Verma, said adding this would boost the stock based lending system on the exchanges.

Stating that investigations into last Friday's crash of the Bombay Stock Exchange Sensex by 176 points were continuing, Mr. Mehta said facts were being ascertained in the case of leakage of sensitive information.

On a media report about taped conversation between the BSE president, Mr. Anand Rathi, and another official, Mr. Mehta said ``We are ascertaining the facts. The taped conversations are there and we are collecting the transcript of it". The National Stock Exchange managing director, Mr. Ravi Narain, said the SEBI move would have a positive impact on market environment as it would be able to contain the `rumour mill'.

Today's measures have been enforced for the second time, the earlier occasion being in 1998, Mr. Mehta said clarifying that the move will not have any dampening effect.

Mr. Verma said initially the system of short sales and the reporting of the working would be on self certification basis and exchange officials would do the offsite inspections up to sub- broker level to ascertain that brokers were going by the rule book.

Mr. Mehta said the margin system would be replaced by `value at risk system' for the cash based trading to know the extent of volatility. This system is already in place for derivative-based trading, he added. The `vale at risk system' would come into effect from July 1 as some modalities have been formulated and the entire set of guidelines would be firmed up shortly, SEBI executive director, Mr. Pratip Kar, said.

The stock exchange representatives at the risk management group meeting have indicated that they would make every effort to verify the `rumours' and help to disseminate the information quickly, Mr. Kar added.

Mr. Mehta said the SEBI had already approached the Government for demutualisation of the exchanges as these bourses were broker driven and the moral conflict of interests was evident on such exchanges.There were certain tax related difficulties for making these exchanges into corporate bodies and government was working on it, he added.

- PTI

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