Before uti's July 2 announcement banning repurchase and sale of US-64 units, few people knew that one could buy and sell these units in the secondary equity market of the nse. Not even the uti top brass, who only knew that the units were listed on nse's wholesale debt market (wdm).
However, US-64 units can be traded in nse's 'permitted to trade' equity category. In the last three years though (since June 26, 1998, when nse put US-64 in its equity segment), only four trades had taken place with the last one in December 2000. On nse's wdm segment where US-64 has been listed since July 19, 1996, the last trade took place way back in March 1999.
This is understandable. Investors could always directly sell—or buy from—uti at uti-declared repurchase/sale prices, instead of in the secondary market where prices would have been market-determined, hence lower; after all, it was no secret that US-64's nav was substantially lower than the repurchase prices declared.
So, with the ban in force, is the secondary market a way out for liquidity-seekers? In the wdm segment, the minimum trade value has to be Rs 1 lakh (10,000 units if one takes a trade price of Rs 10 per unit), while in the equity segment, one can buy and sell even one share. The effect of such a liquidity available to investors would be the same as if uti decided to continue US-64's repurchase and sale at a price level near the scheme's real nav, that is, around Rs 10 or Rs 11. This is clearly reflected from the prices at which the trades in nse's equity segment took place post-July 2. On July 3, 401 US-64 units were traded at an average price of Rs 11.30, down 32 per cent from the last available benchmark price: uti's May 2001 sale price of Rs 14.55. The next day, the price came down another 10 per cent when 16,578 units were traded at an average price of Rs 10.13.
Now, the catch. Only demat units of US-64 can be traded on the nse's equity segment and there are only an estimated 50-80 crore units (0.06 per cent of total outstanding units) in demat form currently. Most investors hold US-64 units in physical form. Dematting them could take a month or more depending on how fast investors send in their requests and how fast they're processed. Of course, on the wdm segment, one can sell the physical certificates, but with the Rs 1 lakh condition. But there has been no wdm trade even after July 2. So, liquidity may not be available for investors here. And with sellers likely to be more than buyers, the price could only go down if volumes rise.