Murky Deals

THE first part of SEBI's investigations deal with the carry forward charges. A broker commits to buy, say, 10,000 SBI shares at the price prevailing on the day, and deposits the margin money. He's now supposed to pay up the rest and take delivery, or sell off the shares, before the designated settlement day. Now, if the price of the scrip hasn't gone up by a substantial amount within that settlement, brokers carry forward their transaction till the next settlement without paying either the money or delivering shares. The cycle goes on from one settlement to the other. The process is also used to rig prices and book profits. Sometimes, when delivery is insisted upon, brokers default on payment. While big brokers make a killing in such transactions, small investors suffer badly.

Short-sellers use similar modus operandi, except that, instead of committing to buy, they order to sell, say for instance, 10,000 Reliance shares at the current price hoping that the share's price will drop further before settlement day. Then they would buy the shares at a lower price, and collect the difference. It's legal if the exercise is done within the 15-day settlement period. However, most brokers carry forward their transactions hoping for a larger margin between buy and sell. In some instances, as in the case of Reliance, brokers are also known to spread rumours in the market for the prices to crash further so that they can make a higher profit.