SURVEILLANCE AND INVESTIGATIONS UNDERTAKEN BY THE SEBI
The SEBI has been continuously conducting surveillance of functioning of stock exchanges and operations of intermediaries and undertaking investigations to trace the facts associated with anomalies noticed in the functioning of companies and intermediaries in the capital market. The decisions and judgement of the SEBI are announced publically.
The Meeting of the Inter Exchange Market Surveillance Group (ISG) held on March 10, 1999
A meeting of the Inter Exchange Market Surveillance Group (ISG) was on March 10, 1999 at the office of SEBI, Mumbai. The meeting was attended by the Executive Directors/Dy. Managing Director of member exchanges of the Group and invitees. Following exchanges attended the meeting:
The Group discussed the status of surveillance and monitoring by the Exchanges in general, and also the present market conditions. In this regard the Exchanges have assured SEBI that the risk containment measures are being strictly enforced and there is no area of concern as regards the safety of the markets. SEBI has further advised the exchanges to step up their surveillance activity to ensure that integrity of the Market is not jeopardised and unscrupulous elements do not take advantage of the present enthusiasm.
The Group also discussed the recent trend of price rise in Software scrips and also the companies which have changed their names suggesting that these companies are related to software and information technology sector. SEBI had earlier circulated a list of such companies to the exchanges. Some Exchanges have also made this list public and have cautioned investors. SEBI has further advised the exchanges to keep a strict vigil on such companies. It was also decided that, the quarterly reports and annual reports of such companies should clearly indicate the turnover and income from software business.
Different margins were prescribed by SEBI in consultation with the stock exchanges at different points of time. This was done as per the requirements and the exigencies of situations. It is felt that there are certain areas where there is lack of uniformity in the implementation by the exchanges. There are also certain overlaps due to various types of margins. Therefore, with a view to streamline, rationalise and refine the margining system, a group consisting of Shri L. K. Singhvi, Sr. ED, Shri Pratip Kar, ED., Shri M. D. Patel, ED, from SEBI, and NSE, BSE, DSE, CSE, UPSE and BgSE was formed. This group would review the existing margin mechanism and submit their recommendation within a month.
The need for strengthening of the surveillance departments of the stock exchanges was again emphasised by SEBI. The Exchanges have been advised to identify their manpower requirements for surveillance activity and go to their respective boards for additional staff. The surveillance departments of the exchanges have been asked to devise an internal system of documentation for surveillance activity to bring about responsibility and accountability in this area of functioning.
The group reviewed the implementation of the stock watch system. NSE & DSE have already implemented Phase-I of the Stock Watch System. BSE would be implementing the same by the end of March 1999, CSE & BgSE would have their system in place by the end of April, 1999 and ASE by the end of June 1999. Other Exchanges are also in the process of implementation.
It was recognised that the surveillance function is a specialised function and requires trained manpower. Therefore a working group was constituted in the last meeting of the ISG to formulate a training module and to lay down procedure for certification for the surveillance staff of the stock exchanges. The report of the working group was considered by ISG and the same has been approved. It is expected that training of the surveillance staff will commence within a month’s time.
It was discussed that coordination and sharing of information amongst stock exchanges is necessary. Further details about such sharing of information in respect of abnormal events and common members will be finalised by the working group shortly.
It was again emphasised that Executive Directors will be directly responsible for surveillance functioning of the exchanges. They would also ensure that surveillance is effective and all surveillance decisions are taken without any interference.
Investigations carried for BPL, Videocon and Sterlite
In the wake of payment crisis in the month of June 1998 on BSE and NSE and allegations of manipulations in the scrips of BPL, Videocon and Sterlite, investigations were conducted by SEBI. The functioning of the exchanges and their office bearers were also investigated. Pursuant to these investigations a show cause notice dated 10th February 1999 was issued to Shri R.C. Mathur, (Executive Director), Shri R.K. Banthia (Ex-Vice President) and Shri J.C. Parekh, (President). The show cause notice issued to the President was for his role in influencing the exchange administration and getting margins reduced, for getting the trading system opened beyond trading hours for selected brokers, for not keeping the Governing Board fully informed etc. SEBI after hearing the President has passed an order dated 23rd February, 1999 directing Shri J.C. Parekh to relinquish the office of the President of Bombay Stock Exchange. He has also been made in-eligible to hold any public position in future as a member of the Governing Board or the office bearer of the exchange as well as any capital market related public institution for a further period of 3 years.
Shri J.C. Parekh had filed a writ petition before the Bombay High Court challenging this order of SEBI and seeking stay of SEBI's order. The Division Bench consisting of Justice N.J. Pandya and Justice S.S. Parkar have dismissed the writ petition. However Shri Parekh has been permitted to continue as President till 31st March 1999, 11.00 am in order to enable him to prefer an appeal before the Appellate Authority, Central Government, if he so desires. The High Court has prohibited Shri J.C. Parekh from discharging any duties as a President and also prohibited him from attending the Governing Board meetings.