The Joint Parliamentary Committee (JPC), which is investigating the market crash of 2001, has expressed concerns over the Securities and Exchange Board of India (Sebi) not fixing any limit on financing under the automated lending and borrowing mechanism (ALBM), which enabled a single player to influence the market.
The JPC in its final draft report has stated, "What is appalling to the committee is that Sebi never realised the role played by ALBM in the market crash of 2001 nor did it initiate any investigation of ALBM after the crash." Sebi investigated the ALBM and came out with a revealing report only after persistent and probing questioning by the JPC.
The committee has also hauled up the National Stock Exchange (NSE). The JPC in its draft report said, "The committee does not think that NSE was no naive as not to know that the revised ALBM was beyond the scope of the securities lending scheme and that it contained features of deferral products which required Sebi's prior approval for its introduction."
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In December 1999, the ALBM of the National Securities Clearing Corporation (NSCCL) was modified within 10 months without Sebi's approval. The modified ALBM incorporated features of deferral products and it did have risk containment measures which is normally required in this regard.
It has also noted that Sebi's handling of the issue relating to the revised ALBM leaves much to be desired. Though NSE had filed revised scheme with the regulator in October 1999 and operationalised from December 1999.
That is after two months, Sebi did not consider the proposal for revision even though carryforward character of the revised scheme had been known in early January 2000 itself as is evident from the perusal of the file submitted by Sebi.
The inordinate delay in action by the markets regulator on the modified ALBM even when Sebi officials were well aware of the serious ramification of the scheme is something beyond comprehension's, the committee noted.
The committee, therefore, desires that the matter should be thoroughly investigated by the finance ministry and responsibility be fixed on those who were responsible for this inaction in Sebi and those in NSE, who jeopardised the interest of investors and endangered the entire secondary market by embarking upon such a scheme.