Widening The Net

IN broking circles, it was hardly a secret. Since the country's premier stock exchange—the Bombay Stock Exchange (BSE)—had tightened its screws on illegal trading and unsavoury practices, you could still conduct all your shady deals from other centres. On September 2, when the Securities and Exchange Board of India (SEBI) sent show cause notices to 33 stockbrokers and three securities firms across the country for illegal badla deals, the message was clear and emphatic to all the bourses: shape up or ship out.

In yet another detonation whose tremors are being felt in all the bourses, SEBI accused all the five elected members of the Pune Stock Exchange (PSE) board of failing to ensure proper governance of the exchange. The Board's charges centre around proved illegal badla trades in over 20 lakh shares of Reliance and SBI last year. For the first time, the government watchdog may supersede the governing board of a bourse, in this case, the PSE. Says L.K. Singhvi, senior executive director, SEBI: "This is the first time that SEBI has initiated action on such a large scale against members of three exchanges."

In the first part of its investigations that began in February this year, based on press reports of fraudulent trade practices in Pune, SEBI closed in on six Calcutta firms and two Bombay brokers on similar charges. Calcutta Stock Exchange (CSE) Vice-President, Subash Pachisia, has been asked why he should not be removed from directorship of the CSE and debarred from holding any CSE office for two years. The Calcutta brokers issued notices include Subhash & Co, Prudential Stock Broking, Ashok Poddar and Vinod Kandoi. Vinod Biyani and Ramesh Biyani from Bombay have also been served notices by SEBI.

Among the Pune broking firms threatened by SEBI are Mangal Sen, Shobha Investments, Devi Investments, Prabodh Arthvardhini and Janhavi Securities, a part of the Janhavi Investments group. The Janhavi group in Pune is controlled by Soumitra 'Montu' Wardekar, a well-known speculator and shortseller. One Bombay firm, Mega Stock & Securities, with which BSE treasurer Rajendra Bhantia is reportedly associated, has also been showcaused by SEBI. Bhantia, however, denies his association. Mega Securities is also believed to be linked to BSE member Shrikant Mantri, who, denying any connection with the firm which belongs to his brother Sushil Mantri, explains: "Mega Securities is only an arbitrage outfit and involved in jobbing." 

SEBI has conclusively established that some stockbrokers were using Pune and Calcutta as bases for their illegal carry forward trades. "While the complicity of the members from the three exchanges has been proved, future investigations will cover members from other exchanges as well," says Singhvi. The present violations range from illegal carry forward, evasion of margins, non-reporting of transactions and contravention of other SEBI regulations.

The second report, according to Singhvi, will crack down on short-sellers. The investigations are nearly complete and action will be initiated shortly. "Short-selling was clearly destabilising prices and SEBI is as concerned about such manipulations as it is about rigging prices upwards," he says. In fact, the default of three brokers on the Ahmedabad Stock Exchange last week was a result of shortselling deals. "The unauthorised carry forward transactions also led to massive evasion of margins which ran into several crores," says Singhvi. In Pune alone, evasion is estimated to be around Rs 15 crore to Rs 25 crore.

 Whatever the outcome of its investigations, the fact that the bark of the bourses' watchdog is turning into bite has rattled market operators. The crash in the prices of BSE membership cards by over 100 per cent may be due to various reasons, but if SEBI's teeth draw blood, the slide may accelerate.