SEBI makes startling revelations on brokers-FII-OCB nexus

NEW DELHI, SEPT. 6. Highlighting the `clear' nexus between brokers, foreign institutional investors and overseas corporate bodies (OCBs), the securities and Exchange Board of India (SEBI) has mooted a six-point strategy including a central authority to monitor flow of funds into the capital market in the face of gross violation leading to manipulation of share prices and regulatory norms.

In a 1,500-page four-volume interim report on the stock market scam, the market regulator said, ``brokers received large finances from banks and corporates and used it for stock market operations." The detailed investigations involved 15 highly traded scrips namely DSQ Software, Global Telesystem, HFCL, Pentamedia Graphics, Satyam Computers, Silverline, SSI, Zee Telefilms, Ranbaxy, Aftec Infosys, Global Trust Bank, Padmini Technologies, Shonkh Technologies, Lupin Laboratories, and Adani Exports.

The interim report prima-facie dealt with `big bull' Ketan Parekh and entities controlled by or associated with him and other groups besides investigations leading to the payment crisis in the Calcutta Stock Exchange. The investigation shows that certain market operators were able to build up concentrated positions due to large funds being available from the banking system and corporate houses.

Elaborating on the nexus between brokers, mainly Parekh and certain FII sub- accounts and OCBs, SEBI has indicted Parekh for receiving substantial financing from banks and corporates and using it for stock market operations. Credit Suisse First Boston (CSFB) has also been reprimanded by the market regulator for fraudulent dealings in the market. CSFB allegedly facilitated creation of an artificial market in certain scrips through circular trading in its own account. On the basis of preliminary findings, SEBI has decided to enlarge the scope of investigation into the activities of various broking companies including Nirmal Bang, First Global, R. S. Damani, CSFB and Ajay Kayan. SEBI also accused Shankar Sharma of First Global for utilising clients' funds to meet payment obligations for proprietary trades.

It charged former president of Bombay Stock Exchange, Mr. Anand Rathi, for using his position to access sensitive information from BSE officials for `benami' trades. The flow of funds into the stock market was inter-woven into a myriad of complex transactions through a number of entities and given varying nomenclatures such as share application money, loans and advances and inter corporate deposits bill discounting. Even the source of money and the identity of the ultimate financier is diffused, the report pointed out.

Rathi denies charges

Denying SEBI's charges that powers of president of Bombay Stock Exchange was misused, its former president, Mr. Anand Rathi, said today the call made by him to the surveillance department was within the law stipulated under the stock exchange bye-laws.

``The call made by Mr. Rathi in his capacity as the president of BSE is within the powers conferred on him by the stock exchange bye-laws and in discharge of his duties and can in no way be termed as misuse of office," Mr. Rathi said in a statement here.

However, SEBI interim report said, ``The argument made by Mr. Rathi that it was well within his right as president of BSE to obtain information from surveillance as may be necessary in discharge of duties as president, is untenable." The report also said investigation revealed that Mr. Rathi had called surveillance department and by obtaining price-sensitive information directly from surveillance, had damaged the integrity of the surveillance system of stock exchanges which had shaken the confidence of investors in the system of securities market in the country.

Mr. Rathi, however, quoting sections of the report, said there had been no misuse and most of the transactions were in the accounts of clients.

The SEBI report also said all fund entries by Anand Rathi and group companies of over Rs. 1 crore were in the normal course of business and most of the sale of Navartan Capital and Securities and Suresh Rathi Securities on March 5, were in the nature of squaring off on behalf of clients as it was the last trading day of the settlement cycle of NSE.

- PTI

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