The Securities and Exchange Board of India (Sebi) has castigated the Calcutta Stock Exchange (CSE) for not complying with its direction requiring stock exchanges to include the outstanding delivery positions of the brokers in previous settlements in their permissible exposure limit in the current settlement.
However, it added that common investors did not suffer, as CSE made good the shortfall of the brokers.
The second interim report of Sebi has said it had issued the circular in July 1999, to take care of the full risk involved till the pay-in of the delivery positions of the previous settlements was completed. But "CSE did not follow this circular on the ground that it was not explicit.
"However, CSE never sought any clarification from Sebi," the report submitted to the joint parliamentary committee (JPC) said. It goes on to say that the common investors have not been adversely affected "as the business done on behalf of the common investors" by the major defaulters "was negligible and CSE had met the entire pay in shortfall out of its settlement guarantee funds".
The report said, while other stock exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) complied with its circular on delivery position, CSE did not implement it by not including the crystallised purchased delivery position. Instead, they took the line that the circular was not clear, the Sebi report said.
As a result of non-compliance of the Sebi circular in the settlement 148 which ended on March 1, 2001, the Singhania group benefitted by Rs 150 crore.
"CSE also did not reduce the capital available by the amount of margin due as per the Sebi circular," the report said. Sebi has also taken cognizance of the failure by CSE to take timely action for non-payment of margin on T+1 basis. Instead, CSE should have collected margins at least as per their own computation even after leaving the crystallised delivery position.
On CSE, the defaults occurred for pay-ins in settlement Nos. 148, 149 and 150 on March 8, March 15, and March 22, 2001, respectively. "This pay-in problems at CSE revealed that large positions were built by some group of brokers in select scripts and these group of brokers had close linkages with Ketan Parekh," the report said.
Sebi has investigated four entities of the Singhania group, four Poddar group companies, four Ajay Kayan group and two Biyani group companies, who defaulted in making their pay-ins. The report has noted that group companies of all the four entities had defaulted mainly due to building up of large concentrated position in HFCL, DSQ and ACC.
