Ashish Rukhaiyar & Reena Zachariah
MUMBAI
Dec 30, 2008
ASIA’S oldest exchange, Bombay Stock Exchange (BSE), now has two foreign nominees on its board. According to people familiar with the development, BSE has inducted Singapore Exchange (SGX) chief financial officer Seck Wai Kwong and Eurex chief executive Andreas Preuss on its board. Eurex is jointly operated by Deutsche Borse AG and SIX Swiss Exchange.
SGX and Deutsche Borse AG hold 5% each in BSE. The development was confirmed to ET by one of the BSE board members. According to this member, “two new members have been inducted on the board of the exchange recently as shareholder directors from Singapore Stock Exchange and Deutsche Bvrse.”
However, a BSE spokesperson said only Mr Kwong of SGX has been inducted on the board. “Seck Wai Kwong has come on board on November 8, 2008, and the process of inducting a nominee of Deutsche Bvrse is on at present,” said an official in response to an email query. The BSE website, however, has no mention of the appointment of Mr Kwong. To this the spokesperson responded: “Our website is being updated.”
SGX and Deutsche Borse are the only two foreign exchanges to hold stakes of 5% each in BSE. The earlier demutualisation norms allowed foreign entities to hold a maximum of 5% in any Indian exchange. The latest amendments have hiked this limit to 15% although none of the foreign shareholders have, till date, increased their holdings beyond 5%.
While BSE has only recently inducted representatives of foreign shareholders on its board, the National Stock Exchange (NSE) did it in 2007 when NYSE Euronext got its nominee on the board of India’s largest stock exchange. NSE’s foreign shareholders include Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund, among others.
On a different note, the BSE board is slated to meet on January 10, 2009, and there would be “at least some discussions related to the new chief executive,” of the exchange. It is more than four months since Rajnikant Patel resigned as managing director and CEO of the exchange.
Wednesday 31 December 2008
Fence sitters take baby steps to D-Street
Broking Firms Report Rise In New Active Demat
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Corp governance rating to get a boost
Raters Hope More Companies Will Opt For
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Difficult to wriggle out of legal tangle
Shareholders Can Take Co To Court Even Now
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Wary hedge funds hold on to cash in uncertain times
Hopes Of Market Revival May Be Belied As Traditional
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
BSE cuts penalty on KGN Ind
Ashish Rukhaiyar
MUMBAI
Dec 03, 2008
THE Bombay Stock Exchange has revised its earlier order pertaining to KGN Industries, wherein it had penalised more than 200 brokers for their alleged role in manipulating the share price on the relisting day.
According to people familiar with the development, the exchange has more than halved the penalty amount for most broking houses that were named in the earlier order in June 2008. The development follows representations made by these brokers with some even knocking the doors of the Securities Appellate Tribunal (SAT).
The case goes back to June 2008 when BSE slapped a fine of up to Rs 5 lakh on 222 brokers for allegedly manipulating the stock price of KGN Industries on the day of its relisting on May 21. The stock opened at Rs 72 and went on to hit an incredible price of Rs 55,000 within two hours.
BSE suspended trading in the stock around 12.20 pm when it fell back to Rs 15,000. Later on that day, BSE issued a release saying: “Further investigations will be carried out, but trading in the stock will resume on Thursday at the adjusted price of Rs 5,216.30.”
The exchange, in its new order announced a few days ago, has tried to penalise only those entities that punched in orders but failed to take actual delivery of the stock. Brokers, however, are still unhappy as most of them did not get delivery due to genuine reasons and still have to pay penalty.
"Only 827 shares were traded on May 21 and so most brokers did not get delivery," said a compliance officer of a brokerage whose penalty was reduced to Rs 1.25 lakh from the earlier Rs 5 lakh. "So still many brokers who had no malicious intent have to pay penalty albeit of a lower value," he added.
Around 4-5 aggrieved brokerages, including Asit C Mehta, Networth Stock Broking and SBICAP Securities, had moved the Securities Appellate Tribunal (SAT), challenging the exchange’s order. SAT apparently asked BSE to explain the rationale of its order. Meanwhile, a mail sent to the exchange asking for details related to the revised order remained unanswered till the time of going to press.
BSE, in its earlier order, observed that some of the trading members entered orders at unrealistic prices, disturbing the market equilibrium. "In view of the same, it has been decided to impose a fine up to Rs 5 lakh on such trading members," said the exchange.
The trading members who were named in the order included Angel Broking, Brics Securities, Centrum, Dawnay Day, Emkay, Geojit, India Infoline, Religare, Sharekhan and Anand Rathi among others.
Brokers try alternate source of revenue
Ashish Rukhaiyar
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
Indians hope to bring change to Obama White House
Ashish Rukhaiyar
MUMBAI
Nov 15, 2008
THE history-making Obama campaign has captivated millions all over the world. Indians are clearly not immune to the charisma of the one-time Senator from Illinois. In a somewhat unexpected development, Indians in considerable numbers have been volunteering to serve in an Obama administration.
Mahesh Nair (name changed) was fired up when he heard Barack Obama say, “Change will not come if we wait for some other person or some other time.” He knew, at once, that Obama was the kind of person he wanted to work for. Mahesh is now one among many Indians who are ready to work for Obama and have submitted applications through his official website: change.gov.
US President-elect Obama launched the website immediately after winning the race and since then has seen its popularity surge with each passing day. And Indians are contributing to it in huge numbers. Outside the US, the website is registering the second-highest number of hits from India, with Germany occupying the top slot.
According to web information company Alexa, nearly 65% of the traffic on change.gov is from within the US. Germany accounts for 8% while India occupies the second slot with a share of more than 3%.
While the number may appear minuscule, it is important to note that India has managed to stay ahead of countries like the UK, Canada, Australia and China. “I think Obama has managed to do something that even Indian political leaders would have failed to do,” says Mr Nair who works with an online portal and has applied for a job in the FCC department that defines policies for technology, internet and wireless. “While many of my colleagues have applied for jobs, no one wants to disturb the bosses by talking about it openly,” he adds.
People wishing to work for the Obama-Biden administration have to send a request through the website after which a 14-page document is mailed to them. Applicants have to submit their personal details apart from information on prior media/public speaking/political experience, desired position in the administration and three references. Applicants can choose from a number of departments, including justice, transportation and veteran affairs. One can also include his preference for working in non-profit organisations.
Filling the 14-page form, however, is just the first stage of the whole process, as applicants who are considered for a specific position would have to fill out additional forms, including financial disclosures. Interestingly, such applicants could also be subject to FBI background checks.
While the applicant is asked if he is eligible to work in the US, it is still not clear how India-based applicants would be involved in the Obama-Biden team. “There is no mention of how people from other countries would be included in the administration team,” says Deepa who has expressed her desire either to work in the department of environment or education. “The acknowledgement mail only says that there has been thousands of applications. And initially, the focus would be on the senior-most positions in the administration,” she adds.
Interestingly, while the form does ask for the ‘race’ of the applicant, it explains that it does so only for the “purpose of collecting information for statistical records”. Moreover, it is not compulsory to provide this information.
In fact, the website clearly mentions that the “Obama-Biden Transition Project does not discriminate on the basis of race, colour, religion, sex, age, national origin, veteran status, sexual orientation, gender identity, disability, or any other basis of discrimination prohibited by law”. Meanwhile, Team Obama would be unveiled on January 20, 2009 when the Democrat senator from Illinois assumes office.
MUMBAI
Nov 15, 2008
THE history-making Obama campaign has captivated millions all over the world. Indians are clearly not immune to the charisma of the one-time Senator from Illinois. In a somewhat unexpected development, Indians in considerable numbers have been volunteering to serve in an Obama administration.
Mahesh Nair (name changed) was fired up when he heard Barack Obama say, “Change will not come if we wait for some other person or some other time.” He knew, at once, that Obama was the kind of person he wanted to work for. Mahesh is now one among many Indians who are ready to work for Obama and have submitted applications through his official website: change.gov.
US President-elect Obama launched the website immediately after winning the race and since then has seen its popularity surge with each passing day. And Indians are contributing to it in huge numbers. Outside the US, the website is registering the second-highest number of hits from India, with Germany occupying the top slot.
According to web information company Alexa, nearly 65% of the traffic on change.gov is from within the US. Germany accounts for 8% while India occupies the second slot with a share of more than 3%.
While the number may appear minuscule, it is important to note that India has managed to stay ahead of countries like the UK, Canada, Australia and China. “I think Obama has managed to do something that even Indian political leaders would have failed to do,” says Mr Nair who works with an online portal and has applied for a job in the FCC department that defines policies for technology, internet and wireless. “While many of my colleagues have applied for jobs, no one wants to disturb the bosses by talking about it openly,” he adds.
People wishing to work for the Obama-Biden administration have to send a request through the website after which a 14-page document is mailed to them. Applicants have to submit their personal details apart from information on prior media/public speaking/political experience, desired position in the administration and three references. Applicants can choose from a number of departments, including justice, transportation and veteran affairs. One can also include his preference for working in non-profit organisations.
Filling the 14-page form, however, is just the first stage of the whole process, as applicants who are considered for a specific position would have to fill out additional forms, including financial disclosures. Interestingly, such applicants could also be subject to FBI background checks.
While the applicant is asked if he is eligible to work in the US, it is still not clear how India-based applicants would be involved in the Obama-Biden team. “There is no mention of how people from other countries would be included in the administration team,” says Deepa who has expressed her desire either to work in the department of environment or education. “The acknowledgement mail only says that there has been thousands of applications. And initially, the focus would be on the senior-most positions in the administration,” she adds.
Interestingly, while the form does ask for the ‘race’ of the applicant, it explains that it does so only for the “purpose of collecting information for statistical records”. Moreover, it is not compulsory to provide this information.
In fact, the website clearly mentions that the “Obama-Biden Transition Project does not discriminate on the basis of race, colour, religion, sex, age, national origin, veteran status, sexual orientation, gender identity, disability, or any other basis of discrimination prohibited by law”. Meanwhile, Team Obama would be unveiled on January 20, 2009 when the Democrat senator from Illinois assumes office.
Promoters may rush to hike stake in holding cos
Attractive Valuations, Easier Norms For Accumulating Shares
Throws Open An Opportunity To Cash-Rich Promoters
Ashish Rukhaiyar
MUMBAI
Nov 04, 2008
IT MAY be a bit early to conclude on the impact of the market regulator’s recent move of allowing promoters to hike their stake up to 75% through the creeping acquisition route. But a section of market watchers are expecting an immediate fallout of the new rule.
They feel holding companies of various corporate houses, available at a steep discount to their net asset value, are likely to see a flurry of activity in the coming days. With share prices of these holding firms having been beaten down quite a bit, cash-rich promoters would find it cheaper to increase stakes in their companies through the holding companies’ route.
In an important amendment to the creeping acquisition rules last week, Sebi allowed promoters to increase their holdings in companies up to 75% through the creeping acquisition route provided that the acquisition is done through open market purchases and not through bulk/block deal or through preferential allotment. Earlier, this route was not available for promoters whose holding reached 55%. Creeping acquisition refers to the process wherein promoters can increase their stake each year by 5%.
Large corporate houses, including the Tatas, Birlas and Godrejs have listed holding companies that in turn hold sizeable stake in the various group companies. Holding companies typically are formed only for the purpose of owning shares of other group companies. As such, these entities are not involved in the actual production of goods or services.
“For cash-rich promoters, this is the ideal time to raise their stake in holding companies,” says Networth Stock Broking head of sales Deepak Mehta. “Firstly, prices are much below the fair value in lots of cases and secondly, the holding companies are quoting at a substantial discount. The only issue is how many promoters have that kind of cash,” he adds.
For instance, Tata Investment Corporation holds sizeable stake in Tata entities like Tata Chemicals, Tata Motors, Tata Power and Tata Steel. As per Monday’s closing price, the market capitalisation of Tata Investment stood at Rs 967 crore. Meanwhile, the value of its total investments in Tata group companies is estimated to be around Rs 1,200 crore.
According to KRIS director Arun Kejriwal, the regulator’s move has given promoters “an excellent opportunity” to up their stake in holding companies that “typically trade at a discount to their net asset values”. The value of these entities do not appreciate much and the management gains only by way of dividends, he adds. “There is a lot of logic in this approach,” feels Mr Kejriwal.
Meanwhile, Mcdowell Holdings has a stake in companies like United Breweries and UB Engineering. While the M-cap of Mcdowell Holdings is less than Rs 66 crore, its investment in UB group companies is pegged around Rs 165 crore. Bajaj Holdings is the holding company of Bajaj group and has a market capitalisation of around Rs 3,445 crore. The value of its investment, however, in Bajaj entities is much higher than its own M-cap.
BUSY STREET
* Holding cos typically trade at a discount to their net asset value
* Creeping acquisition norms’ amendment likely to induce promoters to increase stake in holding cos
* Beaten down share prices could act as an added incentive for promoters, say market players
* It would also help promoters thwart takeover threats in future
Throws Open An Opportunity To Cash-Rich Promoters
Ashish Rukhaiyar
MUMBAI
Nov 04, 2008
IT MAY be a bit early to conclude on the impact of the market regulator’s recent move of allowing promoters to hike their stake up to 75% through the creeping acquisition route. But a section of market watchers are expecting an immediate fallout of the new rule.
They feel holding companies of various corporate houses, available at a steep discount to their net asset value, are likely to see a flurry of activity in the coming days. With share prices of these holding firms having been beaten down quite a bit, cash-rich promoters would find it cheaper to increase stakes in their companies through the holding companies’ route.
In an important amendment to the creeping acquisition rules last week, Sebi allowed promoters to increase their holdings in companies up to 75% through the creeping acquisition route provided that the acquisition is done through open market purchases and not through bulk/block deal or through preferential allotment. Earlier, this route was not available for promoters whose holding reached 55%. Creeping acquisition refers to the process wherein promoters can increase their stake each year by 5%.
Large corporate houses, including the Tatas, Birlas and Godrejs have listed holding companies that in turn hold sizeable stake in the various group companies. Holding companies typically are formed only for the purpose of owning shares of other group companies. As such, these entities are not involved in the actual production of goods or services.
“For cash-rich promoters, this is the ideal time to raise their stake in holding companies,” says Networth Stock Broking head of sales Deepak Mehta. “Firstly, prices are much below the fair value in lots of cases and secondly, the holding companies are quoting at a substantial discount. The only issue is how many promoters have that kind of cash,” he adds.
For instance, Tata Investment Corporation holds sizeable stake in Tata entities like Tata Chemicals, Tata Motors, Tata Power and Tata Steel. As per Monday’s closing price, the market capitalisation of Tata Investment stood at Rs 967 crore. Meanwhile, the value of its total investments in Tata group companies is estimated to be around Rs 1,200 crore.
According to KRIS director Arun Kejriwal, the regulator’s move has given promoters “an excellent opportunity” to up their stake in holding companies that “typically trade at a discount to their net asset values”. The value of these entities do not appreciate much and the management gains only by way of dividends, he adds. “There is a lot of logic in this approach,” feels Mr Kejriwal.
Meanwhile, Mcdowell Holdings has a stake in companies like United Breweries and UB Engineering. While the M-cap of Mcdowell Holdings is less than Rs 66 crore, its investment in UB group companies is pegged around Rs 165 crore. Bajaj Holdings is the holding company of Bajaj group and has a market capitalisation of around Rs 3,445 crore. The value of its investment, however, in Bajaj entities is much higher than its own M-cap.
BUSY STREET
* Holding cos typically trade at a discount to their net asset value
* Creeping acquisition norms’ amendment likely to induce promoters to increase stake in holding cos
* Beaten down share prices could act as an added incentive for promoters, say market players
* It would also help promoters thwart takeover threats in future
Realtors talk hybrid deals with PEs
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 31, 2008
SOME real estate companies are trying to cut hybrid capital deals with private equity players, though the industry and deal makers are keeping their fingers crossed, given the turmoil in financial markets. Drying credit lines, non-availability of low-cost working capital and continuing downturn in equities have pushed cash-strapped promoters to work on new mezzanine structures with PE firms.
Mezzanine finance is a structured debt-like instrument consisting of cash income and an equitylinked component. It is sandwiched between debt and equity on a company’s balance sheet. Under mezzanine financing, the strategic investor (generally a private equity firm) funds a company through debt and equity.
According to private equity fund managers, the net cost of investments is 20-25%. Of this, 15-20% is paid as interest on debt and the remaining 5-10% is offered to the private equity investor as warrants exercisable at close of debt maturity at zero cost. The equity portion is valued on the basis of the company’s outlook, experts said.
“The current economic conditions are forcing companies to opt for quasi debt/quasi equity kind of financing. Several real estate companies are looking at this option to raise funds. A few are already negotiating with strategic investors,” said Noble Group’s Indian equities head Saurabh Mukherjea.
Mezzanine capital is typically used to finance acquisitions, product enhancement and plant expansion. Although it constitutes a small percentage of a company’s total available capital, mezzanine financing has become important for middle-market companies in recent months.
Some mezzanine deals already done
“TO MY knowledge, there has been no mezzanine financing deal in India lately. The segment is in a pause mode as of now. But I am sure that promoters are considering such fund-raising options,” said ICICI Ventures MD Renuka Ramanathan. ICICI Venture is in the process of closing the country’s first mezzanine fund. ICICI Venture’s ‘India Advantage Fund VII’ will offer $110 million in its first round of fund raising.
Mr Mukherjea said, “Private equity investors are not willing to finance companies without equity participation. Mezzanine financing offers promoters the flexibility to meet fund requirements without a significant dilution in ownership. Deal sizes should range between $15 million and $200 million in India.” The fees for raising money is about 1-2%of the transaction amount.
Mezzanine financing is a funding strategy that blooms when other forms of capital raising become unviable and impossible. Collaterised debt, zero-cost conversion of warrants and low investment tenures make mezzanine funding beneficial for the investor.
If analysts are to be believed, a few deals structured on the lines of mezzanine financing have already taken place over the past eight months. “These deals are not made public as they involve several regulatory bottlenecks,” an analyst said.
MUMBAI
Oct 31, 2008
SOME real estate companies are trying to cut hybrid capital deals with private equity players, though the industry and deal makers are keeping their fingers crossed, given the turmoil in financial markets. Drying credit lines, non-availability of low-cost working capital and continuing downturn in equities have pushed cash-strapped promoters to work on new mezzanine structures with PE firms.
Mezzanine finance is a structured debt-like instrument consisting of cash income and an equitylinked component. It is sandwiched between debt and equity on a company’s balance sheet. Under mezzanine financing, the strategic investor (generally a private equity firm) funds a company through debt and equity.
According to private equity fund managers, the net cost of investments is 20-25%. Of this, 15-20% is paid as interest on debt and the remaining 5-10% is offered to the private equity investor as warrants exercisable at close of debt maturity at zero cost. The equity portion is valued on the basis of the company’s outlook, experts said.
“The current economic conditions are forcing companies to opt for quasi debt/quasi equity kind of financing. Several real estate companies are looking at this option to raise funds. A few are already negotiating with strategic investors,” said Noble Group’s Indian equities head Saurabh Mukherjea.
Mezzanine capital is typically used to finance acquisitions, product enhancement and plant expansion. Although it constitutes a small percentage of a company’s total available capital, mezzanine financing has become important for middle-market companies in recent months.
Some mezzanine deals already done
“TO MY knowledge, there has been no mezzanine financing deal in India lately. The segment is in a pause mode as of now. But I am sure that promoters are considering such fund-raising options,” said ICICI Ventures MD Renuka Ramanathan. ICICI Venture is in the process of closing the country’s first mezzanine fund. ICICI Venture’s ‘India Advantage Fund VII’ will offer $110 million in its first round of fund raising.
Mr Mukherjea said, “Private equity investors are not willing to finance companies without equity participation. Mezzanine financing offers promoters the flexibility to meet fund requirements without a significant dilution in ownership. Deal sizes should range between $15 million and $200 million in India.” The fees for raising money is about 1-2%of the transaction amount.
Mezzanine financing is a funding strategy that blooms when other forms of capital raising become unviable and impossible. Collaterised debt, zero-cost conversion of warrants and low investment tenures make mezzanine funding beneficial for the investor.
If analysts are to be believed, a few deals structured on the lines of mezzanine financing have already taken place over the past eight months. “These deals are not made public as they involve several regulatory bottlenecks,” an analyst said.
NSE pips peers in currency futures membership race
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
Oct 29, 2008
THE National Stock Exchange (NSE) has pipped rival stock exchanges in terms of attracting the largest number of members in the recently-launched currency futures segment. The country’s largest stock exchange, which was also the first to launch currency derivatives, has raced ahead of its two rivals — the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange of India (MCX). NSE has also been registering impressive volumes in this segment, with more than one lakh contracts being traded in a single trading session.
According to data released by the Securities and Exchange Board of India (Sebi), 1,030 entities have registered either as trading members or clearing members to participate in the nascent currency derivative market in the country. Of this, NSE has managed to attract 470 entities or close to 46% of the total number of members.
MCX is next with 403 members, being the second exchange to launch currency derivatives trading on October 6 after NSE launched it on August 29. BSE has been able to attract only 157 members so far for its currency segment that was launched on October 1.
Currency futures are contracts that investors enter into to hedge against foreign exchange risk. Currency futures can also be used by speculators attempting to profit from rising or falling exchange rates. Globally, currency market is much bigger than the stock market.
According to reports, London witnesses a daily turnover of $1 trillion in currency futures. In New York, it is said to be in the range of $400-500 billion daily. In Asia, close to $300 billion worth of currency futures is traded daily in Tokyo, with Singapore also reporting huge volumes.
“Amongst the hedgers, arbitragers and speculators who are active in any futures market, volumes in the Indian currency futures market are currently dominated by bankers who are mainly into arbitraging,” says S Ramesh Kumar, senior vice-president at Mumbai-based Asit C Mehta Investment Intermediates.
His broking house has a licence to trade on the currency terminal of NSE. Arbitragers participate in intramarket, intermarket and interexchange (between NSE, BSE, MCX) arbitrage. Hedgers and speculators will be the next wave of traders who will take to the exchange traded markets, he feels. “People involved in commodities trade will feel the need for hedging their currency risks, and they will head to the currency futures terminal,” Mr Kumar says.
This month, on most days, more than one lakh contracts were traded on NSE each day. On October 22, incidentally, more than two lakh contracts were traded in one single session. The average daily turnover in the currency derivatives segment of NSE has been in excess of Rs 600 crore. Meanwhile, on MCX, nearly 60,000 contracts were traded on Monday, October 27. The value of the contracts was close to Rs 300 crore.
A CEO of a domestic brokerage that has memberships of all the three exchanges says, “Only select high net worth individuals and banks are participating in the exchange traded currency derivatives market.”
He adds that most of the small and medium enterprises (SMEs) for whom the segment was launched, are used to much longer contracts than those available on the exchanges. For years, due to unavailability of exchange-traded futures, these SMEs have getting into long-term contracts with banks for hedging their currency exposures.
MUMBAI
Oct 29, 2008
THE National Stock Exchange (NSE) has pipped rival stock exchanges in terms of attracting the largest number of members in the recently-launched currency futures segment. The country’s largest stock exchange, which was also the first to launch currency derivatives, has raced ahead of its two rivals — the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange of India (MCX). NSE has also been registering impressive volumes in this segment, with more than one lakh contracts being traded in a single trading session.
According to data released by the Securities and Exchange Board of India (Sebi), 1,030 entities have registered either as trading members or clearing members to participate in the nascent currency derivative market in the country. Of this, NSE has managed to attract 470 entities or close to 46% of the total number of members.
MCX is next with 403 members, being the second exchange to launch currency derivatives trading on October 6 after NSE launched it on August 29. BSE has been able to attract only 157 members so far for its currency segment that was launched on October 1.
Currency futures are contracts that investors enter into to hedge against foreign exchange risk. Currency futures can also be used by speculators attempting to profit from rising or falling exchange rates. Globally, currency market is much bigger than the stock market.
According to reports, London witnesses a daily turnover of $1 trillion in currency futures. In New York, it is said to be in the range of $400-500 billion daily. In Asia, close to $300 billion worth of currency futures is traded daily in Tokyo, with Singapore also reporting huge volumes.
“Amongst the hedgers, arbitragers and speculators who are active in any futures market, volumes in the Indian currency futures market are currently dominated by bankers who are mainly into arbitraging,” says S Ramesh Kumar, senior vice-president at Mumbai-based Asit C Mehta Investment Intermediates.
His broking house has a licence to trade on the currency terminal of NSE. Arbitragers participate in intramarket, intermarket and interexchange (between NSE, BSE, MCX) arbitrage. Hedgers and speculators will be the next wave of traders who will take to the exchange traded markets, he feels. “People involved in commodities trade will feel the need for hedging their currency risks, and they will head to the currency futures terminal,” Mr Kumar says.
This month, on most days, more than one lakh contracts were traded on NSE each day. On October 22, incidentally, more than two lakh contracts were traded in one single session. The average daily turnover in the currency derivatives segment of NSE has been in excess of Rs 600 crore. Meanwhile, on MCX, nearly 60,000 contracts were traded on Monday, October 27. The value of the contracts was close to Rs 300 crore.
A CEO of a domestic brokerage that has memberships of all the three exchanges says, “Only select high net worth individuals and banks are participating in the exchange traded currency derivatives market.”
He adds that most of the small and medium enterprises (SMEs) for whom the segment was launched, are used to much longer contracts than those available on the exchanges. For years, due to unavailability of exchange-traded futures, these SMEs have getting into long-term contracts with banks for hedging their currency exposures.
Foreign institutions may get to buy stake in exchanges ahead of listing
Govt Likely To Let Overseas Funds Purchase
Shares From Primary Shareholders
Shaji Vikraman & Ashish Rukhaiyar
MUMBAI
Oct 23, 2008
THE government is considering a proposal to allow foreign portfolio investors to buy into the equity of stock exchanges. The proposal now being vetted envisages foreign portfolio investors, or FIIs, being allowed to buy a stake in any of the stock exchanges from one of the existing shareholders through a secondary market transaction.
Earlier, at the time of framing the rules for foreign investment, the government and financial regulators had said an FII could pick up stakes in stock exchanges only through secondary market purchases. This was interpreted as permission to buy shares only after the listing of bourses. However, a sale by a primary shareholder to another investor could be construed as a secondary market purchase and not just listing and therefore, the government is set to allow such transactions, said a person familiar with the issue.
India allows foreign investment up to 49% in stock exchanges, depositories and clearing corporations with foreign direct investment of 26% and 23% in the form of foreign portfolio investment. After the rules were notified, many stakeholders made out a case to the government to revise it, saying investors needed more flexibility and comfort.
People familiar with the development say representatives of various stakeholders met with regulatory authorities, seeking more clarity on the issue. Apart from foreign stock exchanges, promoters and top officials of industrial houses, such as Bajaj and Aditya Birla have bought stakes in their personal capacity in the two Indian premier stock exchanges — NSE and BSE.
The proposed move to allow secondary market purchases by FIIs could provide stakeholders an exit option. “This is one of the core issues, especially for foreign shareholders,” says Majmudar & Co managing partner Akil Hirani. “The understanding that we had was that existing shareholders can sell their shares only in the secondary market. And with listing of Indian exchanges nowhere in sight, it was proving to be a major impediment,” he said.
Singapore Exchange (SGX), Deustche Borse and New York Stock Exchange (NYSE) are the three foreign stock exchanges, which hold equity stakes in Indian bourses. Morgan Stanley, Goldman Sachs, Merrill Lynch and Actis are some of the other global majors who bought shares of Indian stock exchanges in 2006.
For many, this was one of the two core issues that was acting as a roadblock in enhancing valuations of Indian bourses. Sebi has already addressed the other issue of a maximum limit for certain categories of shareholders. The limit has been hiked, including for foreign exchanges from the earlier 5% to 15%.
Shares From Primary Shareholders
Shaji Vikraman & Ashish Rukhaiyar
MUMBAI
Oct 23, 2008
THE government is considering a proposal to allow foreign portfolio investors to buy into the equity of stock exchanges. The proposal now being vetted envisages foreign portfolio investors, or FIIs, being allowed to buy a stake in any of the stock exchanges from one of the existing shareholders through a secondary market transaction.
Earlier, at the time of framing the rules for foreign investment, the government and financial regulators had said an FII could pick up stakes in stock exchanges only through secondary market purchases. This was interpreted as permission to buy shares only after the listing of bourses. However, a sale by a primary shareholder to another investor could be construed as a secondary market purchase and not just listing and therefore, the government is set to allow such transactions, said a person familiar with the issue.
India allows foreign investment up to 49% in stock exchanges, depositories and clearing corporations with foreign direct investment of 26% and 23% in the form of foreign portfolio investment. After the rules were notified, many stakeholders made out a case to the government to revise it, saying investors needed more flexibility and comfort.
People familiar with the development say representatives of various stakeholders met with regulatory authorities, seeking more clarity on the issue. Apart from foreign stock exchanges, promoters and top officials of industrial houses, such as Bajaj and Aditya Birla have bought stakes in their personal capacity in the two Indian premier stock exchanges — NSE and BSE.
The proposed move to allow secondary market purchases by FIIs could provide stakeholders an exit option. “This is one of the core issues, especially for foreign shareholders,” says Majmudar & Co managing partner Akil Hirani. “The understanding that we had was that existing shareholders can sell their shares only in the secondary market. And with listing of Indian exchanges nowhere in sight, it was proving to be a major impediment,” he said.
Singapore Exchange (SGX), Deustche Borse and New York Stock Exchange (NYSE) are the three foreign stock exchanges, which hold equity stakes in Indian bourses. Morgan Stanley, Goldman Sachs, Merrill Lynch and Actis are some of the other global majors who bought shares of Indian stock exchanges in 2006.
For many, this was one of the two core issues that was acting as a roadblock in enhancing valuations of Indian bourses. Sebi has already addressed the other issue of a maximum limit for certain categories of shareholders. The limit has been hiked, including for foreign exchanges from the earlier 5% to 15%.
Queue gets longer for currency futures play
Seven Banks Ally With Chicago Mercantile To Float An Exchange
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Keep off from cos where promoters have pledged their shares
Ashish Rukhaiyar
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
IBM initiative helps small cos make it big in emerging markets
Ashish Rukhaiyar
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
Slump-hit arbitrageurs out of job
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
Investors could miss ASBA edge in Tata rights
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
Bankers, brokers squabble over fee
Bankers Claim: We Process ASBA Application;
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
Saturday 1 November 2008
Foreign fund churn leads to bulk deal frenzy
Sep 22, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THE bulk-deal counter on stock exchanges has been witnessing a frenzy of activity over the past couple of weeks as foreign institutional investors (FIIs) shuffle their assets in the wake of the global turmoil. A few FIIs are altogether exiting their positions in India while many others — not registered in India — are changing their asset managers, fearing solvency issues.
The tsunami that has struck US financial markets has already wiped out two high-profile investment banks and forced others to seek either a buyer or a Federal bailout. Given the nervousness in markets worldwide, clients are deserting their brokers and asset managers whom they suspect will not last out the ongoing storm.
Data published by the Bombay Stock Exchange and the National Stock Exchange reveal that leading funds like Morgan Stanley, Merrill Lynch, Goldman Sachs and Deutsche have been flooding the bulk deal counter with sell orders on several stocks in their portfolio. Within the space of a few days, this has run into a few thousand crores as the table above shows.
Then there are the individual clients and hedge funds who invest in India through participatory notes, issued by foreign institutional investors who are registered with the market regulator. These players too are either liquidating their assets or shifting them to more financially-sound investment banks.
“Due to the turmoil in global markets, many P-note holders are relocating their shares from one foreign fund to another who they think is on a better wicket,” says Rahul Rege, CEO of Centrum Capital, a domestic broking house. Most of this is being done through bulk deals.
Other broking officials point out that many hedge funds are raising their cash holdings since they aren’t sure where markets are headed from here. But it is not as though brokers are falling over each other to grab this business.
“Earlier, we used to get a lot of (broking in general) business from Merrill and Lehman among others, and so at times, we used to do their P-note transfer at discounted rates,” said an institutional dealer who did not wish to be named. “But now, since they do not give us volume (broking volumes have fallen drastically since January), it is not feasible to offer discounts for the purpose,” he added. But still, this dealer said, in some of the deals that were witnessed, this commission as been as low as 2 paisa — a brokerage of only Rs 2 lakh for a deal worth Rs 100 crore.
Consequently, these transactions are a drag on the profits, the dealer added. Another new trend is that most of the shares that are being now offloaded are by American entities like Lehman and Merrill and this is being swallowed by Europe-based funds, say dealers.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THE bulk-deal counter on stock exchanges has been witnessing a frenzy of activity over the past couple of weeks as foreign institutional investors (FIIs) shuffle their assets in the wake of the global turmoil. A few FIIs are altogether exiting their positions in India while many others — not registered in India — are changing their asset managers, fearing solvency issues.
The tsunami that has struck US financial markets has already wiped out two high-profile investment banks and forced others to seek either a buyer or a Federal bailout. Given the nervousness in markets worldwide, clients are deserting their brokers and asset managers whom they suspect will not last out the ongoing storm.
Data published by the Bombay Stock Exchange and the National Stock Exchange reveal that leading funds like Morgan Stanley, Merrill Lynch, Goldman Sachs and Deutsche have been flooding the bulk deal counter with sell orders on several stocks in their portfolio. Within the space of a few days, this has run into a few thousand crores as the table above shows.
Then there are the individual clients and hedge funds who invest in India through participatory notes, issued by foreign institutional investors who are registered with the market regulator. These players too are either liquidating their assets or shifting them to more financially-sound investment banks.
“Due to the turmoil in global markets, many P-note holders are relocating their shares from one foreign fund to another who they think is on a better wicket,” says Rahul Rege, CEO of Centrum Capital, a domestic broking house. Most of this is being done through bulk deals.
Other broking officials point out that many hedge funds are raising their cash holdings since they aren’t sure where markets are headed from here. But it is not as though brokers are falling over each other to grab this business.
“Earlier, we used to get a lot of (broking in general) business from Merrill and Lehman among others, and so at times, we used to do their P-note transfer at discounted rates,” said an institutional dealer who did not wish to be named. “But now, since they do not give us volume (broking volumes have fallen drastically since January), it is not feasible to offer discounts for the purpose,” he added. But still, this dealer said, in some of the deals that were witnessed, this commission as been as low as 2 paisa — a brokerage of only Rs 2 lakh for a deal worth Rs 100 crore.
Consequently, these transactions are a drag on the profits, the dealer added. Another new trend is that most of the shares that are being now offloaded are by American entities like Lehman and Merrill and this is being swallowed by Europe-based funds, say dealers.
Pay in bulk, cut your transaction fee
Broking Cos Take Money From Clients Upfront, Who Then Get To Trade At A Discount
Sep 19, 2008
Ashish Rukhaiyar & Benny Antony
MUMBAI
RETAIL broking firms, staring at shrinking revenues due to the sustained downtrend in stock prices, have now come up with a new way to generate cash for their business. Some of the broking firms have started approaching their customers with the concept of ‘advance brokerage’.
In this, the client pays a certain amount of money upfront and then trades without paying any brokerage on individual trades. Depending on the quantum of upfront payment, the customer also stands to gain by way of reduced brokerage.
The concept works like this. Say for instance, the customer pays Rs 10,000 as a one-time deposit to the broker. The customer can then trade without paying any brokerage charges as long as his total brokerage outgo does not cross his deposit limit. It is a sort of win-win situation for both the client and the broking house. The outfit is able to garner a sizeable amount of money upfront and the customer gets a discount in transaction charges.
The customer, moreover, can continue trading after exhausting his deposit limit by making another lumpsum payment. The discount in brokerage, interestingly, directly corresponds to the quantum of deposit that the customer is ready to shell out.
Leading broking firm Religare has a scheme called ‘Trump Account’ for its online customers. Under this scheme, the customer can pay Rs 2,500 as ‘cost of subscription’ and trade for 12 months, during which the brokerage on delivery trades would be 0.25% while that on intraday trades would be 0.025%. If the customer is ready to shell out Rs 15,000, then the brokerage comes down to 0.15% for delivery trades while those on intra-day trades falls to 0.015%.
Broking outfits, through such schemes, are able to woo customers away from other brokers that charge higher transaction fees. Networth Stock Broking V-P (sales) Deepak Mehta says more brokers are coming out with such schemes as it helps them in “generating a decent amount of money at one go,” and are also able to “offer competitive rates to clients.”
Another Mumbai-based outfit claimed that they had a similar offer some time ago but had to close it due to software glitches as well as lots of complaints from customers. An official from the broking firm said, this offer requires a dedicated software. Besides, they also received a lot of complaints from clients regarding discrepancies, due to which they had to discontinue.
Sep 19, 2008
Ashish Rukhaiyar & Benny Antony
MUMBAI
RETAIL broking firms, staring at shrinking revenues due to the sustained downtrend in stock prices, have now come up with a new way to generate cash for their business. Some of the broking firms have started approaching their customers with the concept of ‘advance brokerage’.
In this, the client pays a certain amount of money upfront and then trades without paying any brokerage on individual trades. Depending on the quantum of upfront payment, the customer also stands to gain by way of reduced brokerage.
The concept works like this. Say for instance, the customer pays Rs 10,000 as a one-time deposit to the broker. The customer can then trade without paying any brokerage charges as long as his total brokerage outgo does not cross his deposit limit. It is a sort of win-win situation for both the client and the broking house. The outfit is able to garner a sizeable amount of money upfront and the customer gets a discount in transaction charges.
The customer, moreover, can continue trading after exhausting his deposit limit by making another lumpsum payment. The discount in brokerage, interestingly, directly corresponds to the quantum of deposit that the customer is ready to shell out.
Leading broking firm Religare has a scheme called ‘Trump Account’ for its online customers. Under this scheme, the customer can pay Rs 2,500 as ‘cost of subscription’ and trade for 12 months, during which the brokerage on delivery trades would be 0.25% while that on intraday trades would be 0.025%. If the customer is ready to shell out Rs 15,000, then the brokerage comes down to 0.15% for delivery trades while those on intra-day trades falls to 0.015%.
Broking outfits, through such schemes, are able to woo customers away from other brokers that charge higher transaction fees. Networth Stock Broking V-P (sales) Deepak Mehta says more brokers are coming out with such schemes as it helps them in “generating a decent amount of money at one go,” and are also able to “offer competitive rates to clients.”
Another Mumbai-based outfit claimed that they had a similar offer some time ago but had to close it due to software glitches as well as lots of complaints from customers. An official from the broking firm said, this offer requires a dedicated software. Besides, they also received a lot of complaints from clients regarding discrepancies, due to which they had to discontinue.
Sebi may extend ASBA facility to rights
Move Prompted By The Success Of ‘Application Supported By Blocked Amount’ Concept In 20 Microns’ IPO
Sep 15, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
THE Securities and Exchange Board of India (Sebi) is all set to take the Application Supported by Blocked Amount (ASBA) concept — where money does not leave the applicant’s account when he applies for shares in public issues — to the next level.
After tasting success in the public issue of 20 Microns where nearly 10% of the retail bids came through ASBA, the market regulator wants to extend the facility to other types of issuances, including rights issues. Merchant bankers and registrars, who are handling rights issues, say that Sebi has asked them to incorporate ASBA in the forthcoming issues.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription by cheques. Currently, the facility is available only for retail investors bidding at the cut-off price.
Investors have to submit ASBA, physically or electronically, to the banks where their accounts are maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the applications, as the case may be. ASBA also does away with the refund process, besides reducing the time between an issue and its listing, since the listing happens only after refunds are done.
“The intermediaries are in discussions with the regulator about the feasibility for extending the ASBA facility to right issues too,” says MV Ramnarayan, director of Intime Spectrum Registry, one of the largest share registrars in the country. He says that the successful execution of ASBA during the recent IPO of 20 Microns has convinced many of these intermediaries about its viability.
Intime is slated to handle the forthcoming, high-profile rights issue of Tata Motors which is looking to raise Rs 5,000 crore from the existing shareholders. Some of the other rights issues, which are expected to hit the market in the coming days, are Hindalco, Bharat Forge, Sadhna Nitrochem and Restile Ceramics.
The public issue of 20 Microns was the first issue where ASBA was tested and, according to Sebi, 9.70% of the retail applications (2,426 out of 25,003 applications) were ASBA. Merchant bankers said that ASBA would really pick up when more banks join the list of Self Certified Syndicate Banks (SCSBs) making them eligible for ASBA.
Keynote Corporate Services director (investment banking) Uday Patil feels, “ASBA would go a long way in helping retail investors who earlier had to wait for days to get refunds.” “ASBA can be viewed as the first step toward complete electronic handling of issues,” says Mr Patil.
He, however, feels that more banks need to get empanelled with Sebi for offering ASBA. Till date, 10 banks have launched ASBA facility, including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
Sep 15, 2008
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
THE Securities and Exchange Board of India (Sebi) is all set to take the Application Supported by Blocked Amount (ASBA) concept — where money does not leave the applicant’s account when he applies for shares in public issues — to the next level.
After tasting success in the public issue of 20 Microns where nearly 10% of the retail bids came through ASBA, the market regulator wants to extend the facility to other types of issuances, including rights issues. Merchant bankers and registrars, who are handling rights issues, say that Sebi has asked them to incorporate ASBA in the forthcoming issues.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription by cheques. Currently, the facility is available only for retail investors bidding at the cut-off price.
Investors have to submit ASBA, physically or electronically, to the banks where their accounts are maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the applications, as the case may be. ASBA also does away with the refund process, besides reducing the time between an issue and its listing, since the listing happens only after refunds are done.
“The intermediaries are in discussions with the regulator about the feasibility for extending the ASBA facility to right issues too,” says MV Ramnarayan, director of Intime Spectrum Registry, one of the largest share registrars in the country. He says that the successful execution of ASBA during the recent IPO of 20 Microns has convinced many of these intermediaries about its viability.
Intime is slated to handle the forthcoming, high-profile rights issue of Tata Motors which is looking to raise Rs 5,000 crore from the existing shareholders. Some of the other rights issues, which are expected to hit the market in the coming days, are Hindalco, Bharat Forge, Sadhna Nitrochem and Restile Ceramics.
The public issue of 20 Microns was the first issue where ASBA was tested and, according to Sebi, 9.70% of the retail applications (2,426 out of 25,003 applications) were ASBA. Merchant bankers said that ASBA would really pick up when more banks join the list of Self Certified Syndicate Banks (SCSBs) making them eligible for ASBA.
Keynote Corporate Services director (investment banking) Uday Patil feels, “ASBA would go a long way in helping retail investors who earlier had to wait for days to get refunds.” “ASBA can be viewed as the first step toward complete electronic handling of issues,” says Mr Patil.
He, however, feels that more banks need to get empanelled with Sebi for offering ASBA. Till date, 10 banks have launched ASBA facility, including State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank.
Options outdo futures for first time in 8 years
Besides tax advantages, more and more players are finding options more profitable than futures especially in a range-bound market
Sep 02, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
ONCE seen as a product meant only for the more refined investors, options are becoming more popular than futures, which are more of mass market products. Data reveal that in August, options trading outpaced futures for the first time ever since derivatives were introduced in India eight years ago.
Market participants attribute this trend to the growing number of players, including institutions, that are finding options much more profitable, especially in the current range-bound market. Besides, the tax effectiveness of options over futures after a change in rules this year has made it more appealing to day traders and professional jobbers.
Options are derivative contracts that offer a buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed price (strike price) during a certain period of time or on a specific date (exercise date). When an investor buys an option, the profits that he can make are infinite, but more importantly the losses he may have to incur are limited. In futures both the profits — and losses — can be infinite.
“More and more investors are using options to ride the volatility in the market, which is leading to better volumes in the segment,” says Sailav Kaji, head of derivatives at PINC, a domestic broking house. “The increased participation is leading to still better liquidity and more efficient transactions,” he says.
According to data compiled by ET, options registered a total volume of Rs 3.12 lakh crore in August, which is higher than that of futures at Rs 3.01 lakh crore. Even the average daily turnover of options (Rs 15,605.09 crore) has moved ahead of futures (Rs 15,022.44 crore) for the first time ever in August.
Mr Kaji also points out that the recent introduction of long-dated options has lead to increased interest in the options segment, although volumes there are still to pick up. Options received a major boost when finance minister P Chidambaram, in Union Budget 2008-09, amended the way securities transaction tax (STT) was to be levied on it.
According to the new guidelines, if the option is not exercised, the seller has to pay STT on the premium. If the option is exercised, buyer has to pay STT on settlement price. The move led to many day traders and jobbers switching to options that also allows them to leverage more as compared to futures.
“Leverage and tax treatment are the two most important reasons for the increasing popularity of options,” says Edelweiss Securities assistant vice president Vivek Jain. “Most of the institutional and retail brokerages have started advocating options over futures in the current market scenario,” he added.
Industry participants said brokers, sensing the possible opportunities, have also lowered the brokerage on options trading. “Brokerages charge anything between 7 and 8 basis points to clients that want to trade in futures,” said a broker who did not wish to be named. “The same broker would charge 2-3 basis points for options,” he added.
“Day traders are left with no options but to trade in options since trading in any other category of products attracts too much STT for a transaction to be profitable,” says Rajesh Baheti, MD of Crosseas Capital Services, a large Mumbai-based brokerage that specialises in arbitrage trading. He only buttresses his claim when he says that activity in the index futures is only from the hedgers while those in the stock futures has fallen to almost a quarter of the levels in January this year.
More than 50% of the volumes in the stock market are made by brokerages like Mr Baheti’s. These arbitrage chasers do not take any bets on the direction of a stock, but only seek to lock in the differences between the price of a stock and the futures based on it. But, Mr Baheti says that nearly all of the volumes are restricted to index options, since single stock options still do not have enough liquidity for transactions to be profitable.
Sep 02, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
ONCE seen as a product meant only for the more refined investors, options are becoming more popular than futures, which are more of mass market products. Data reveal that in August, options trading outpaced futures for the first time ever since derivatives were introduced in India eight years ago.
Market participants attribute this trend to the growing number of players, including institutions, that are finding options much more profitable, especially in the current range-bound market. Besides, the tax effectiveness of options over futures after a change in rules this year has made it more appealing to day traders and professional jobbers.
Options are derivative contracts that offer a buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed price (strike price) during a certain period of time or on a specific date (exercise date). When an investor buys an option, the profits that he can make are infinite, but more importantly the losses he may have to incur are limited. In futures both the profits — and losses — can be infinite.
“More and more investors are using options to ride the volatility in the market, which is leading to better volumes in the segment,” says Sailav Kaji, head of derivatives at PINC, a domestic broking house. “The increased participation is leading to still better liquidity and more efficient transactions,” he says.
According to data compiled by ET, options registered a total volume of Rs 3.12 lakh crore in August, which is higher than that of futures at Rs 3.01 lakh crore. Even the average daily turnover of options (Rs 15,605.09 crore) has moved ahead of futures (Rs 15,022.44 crore) for the first time ever in August.
Mr Kaji also points out that the recent introduction of long-dated options has lead to increased interest in the options segment, although volumes there are still to pick up. Options received a major boost when finance minister P Chidambaram, in Union Budget 2008-09, amended the way securities transaction tax (STT) was to be levied on it.
According to the new guidelines, if the option is not exercised, the seller has to pay STT on the premium. If the option is exercised, buyer has to pay STT on settlement price. The move led to many day traders and jobbers switching to options that also allows them to leverage more as compared to futures.
“Leverage and tax treatment are the two most important reasons for the increasing popularity of options,” says Edelweiss Securities assistant vice president Vivek Jain. “Most of the institutional and retail brokerages have started advocating options over futures in the current market scenario,” he added.
Industry participants said brokers, sensing the possible opportunities, have also lowered the brokerage on options trading. “Brokerages charge anything between 7 and 8 basis points to clients that want to trade in futures,” said a broker who did not wish to be named. “The same broker would charge 2-3 basis points for options,” he added.
“Day traders are left with no options but to trade in options since trading in any other category of products attracts too much STT for a transaction to be profitable,” says Rajesh Baheti, MD of Crosseas Capital Services, a large Mumbai-based brokerage that specialises in arbitrage trading. He only buttresses his claim when he says that activity in the index futures is only from the hedgers while those in the stock futures has fallen to almost a quarter of the levels in January this year.
More than 50% of the volumes in the stock market are made by brokerages like Mr Baheti’s. These arbitrage chasers do not take any bets on the direction of a stock, but only seek to lock in the differences between the price of a stock and the futures based on it. But, Mr Baheti says that nearly all of the volumes are restricted to index options, since single stock options still do not have enough liquidity for transactions to be profitable.
Bull run on NSE as cos vie for a slice
Aug 11, 2008
Sangita Mehta & Ashish Rukhaiyar
MUMBAI
INDIA’S leading exchange, the National Stock Exchange (NSE), continues to attract strong investor interest compared to its embattled rival, the Bombay Stock Exchange (BSE), with two corporates — Hero Honda and Srei Infrastructure Finance — acquiring stakes from IFCI and Stock Holding Corporation of India (SHCIL).
At a time when some members of the Bombay Stock Exchange have expressed their willingness to sell their shares at a price lower than what it was placed with institutional investors, the two corporates bought NSE shares at Rs 3,500 apiece. This is the same rate at which the shares of NSE were sold by the Life Insurance Corporation of India in April this year. Stock Holding Corporation, a depository, will earn Rs 20.02 crore by selling 57,200 shares while financial institution IFCI will net Rs 42 crore for the 1.20 crore shares which it put on the block.
This puts NSE’s valuation at close to $4 billion while the valuation of the country’s oldest exchange, Bombay Stock Exchange, has declined to a little less than $1 billion. Stock market players say there are few takers for BSE shares at Rs 4,500 or so.
BSE losing market share to NSE
AT THE height of the market boom, Deutsche Borse had paid Rs 5,200 per share when it acquired a stake of 5% in the BSE. As for the NSE, its share price has risen from Rs 2,100 to Rs 3,500. The decline in the value of BSE shares is largely on account of the fact that the BSE has been steadily losing market share to the NSE. The NSE accounts for almost the entire market share in the derivative space while in the cash market, the NSE has a 60% market share.
Confirming the development, chief executive and managing director of IFCI, Atul Kumar Rai said the move was aimed at bringing down IFCI’s shareholding to 5% as mandated by capital market regulator Sebi.
Senior officials from SHCIL said they were looking at selling their stake, but declined to provide more details. SHCIL has a 7.11% stake in the NSE. Officials in financial institutions said that following the sale of Rs 52,000 shares, SHCIL will continue to hold much higher shares than 5% in the NSE.
The sale of shares is close to the September 2008 deadline set by Sebi on single shareholder limit. Sebi has said no single shareholder can hold more than 5% of the equity in an exchange. At the end of March 31, 2008, LIC, the SBI, Infrastructure Development Finance Corporation and SHCIL have more than 5% stake in the exchange.
In January 2007, IFCI, ICICI Bank, GIC, IL&FS and PNB divested their holdings aggregating 20% in the NSE to the NYSE Group, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund.
Sangita Mehta & Ashish Rukhaiyar
MUMBAI
INDIA’S leading exchange, the National Stock Exchange (NSE), continues to attract strong investor interest compared to its embattled rival, the Bombay Stock Exchange (BSE), with two corporates — Hero Honda and Srei Infrastructure Finance — acquiring stakes from IFCI and Stock Holding Corporation of India (SHCIL).
At a time when some members of the Bombay Stock Exchange have expressed their willingness to sell their shares at a price lower than what it was placed with institutional investors, the two corporates bought NSE shares at Rs 3,500 apiece. This is the same rate at which the shares of NSE were sold by the Life Insurance Corporation of India in April this year. Stock Holding Corporation, a depository, will earn Rs 20.02 crore by selling 57,200 shares while financial institution IFCI will net Rs 42 crore for the 1.20 crore shares which it put on the block.
This puts NSE’s valuation at close to $4 billion while the valuation of the country’s oldest exchange, Bombay Stock Exchange, has declined to a little less than $1 billion. Stock market players say there are few takers for BSE shares at Rs 4,500 or so.
BSE losing market share to NSE
AT THE height of the market boom, Deutsche Borse had paid Rs 5,200 per share when it acquired a stake of 5% in the BSE. As for the NSE, its share price has risen from Rs 2,100 to Rs 3,500. The decline in the value of BSE shares is largely on account of the fact that the BSE has been steadily losing market share to the NSE. The NSE accounts for almost the entire market share in the derivative space while in the cash market, the NSE has a 60% market share.
Confirming the development, chief executive and managing director of IFCI, Atul Kumar Rai said the move was aimed at bringing down IFCI’s shareholding to 5% as mandated by capital market regulator Sebi.
Senior officials from SHCIL said they were looking at selling their stake, but declined to provide more details. SHCIL has a 7.11% stake in the NSE. Officials in financial institutions said that following the sale of Rs 52,000 shares, SHCIL will continue to hold much higher shares than 5% in the NSE.
The sale of shares is close to the September 2008 deadline set by Sebi on single shareholder limit. Sebi has said no single shareholder can hold more than 5% of the equity in an exchange. At the end of March 31, 2008, LIC, the SBI, Infrastructure Development Finance Corporation and SHCIL have more than 5% stake in the exchange.
In January 2007, IFCI, ICICI Bank, GIC, IL&FS and PNB divested their holdings aggregating 20% in the NSE to the NYSE Group, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund.
Rajnikant Patel's exit turns spotlight on BSE hot seat
Aug 09, 2008
Santosh Nair & Ashish Rukhaiyar
MUMBAI
TOP ranking officials of Asia’s oldest stock exchange BSE and Indian cricketers seem to have one thing in common — few have been able to make a graceful exit. Rumours of BSE chief executive and managing director Rajnikant Patel’s resignation had been doing the rounds for quite some time. When he finally put in his papers late on Thursday after cutting short a trip to Hyderabad where he had gone on an official visit, it was the second controversial exit of a board member of the exchange in less than two months. ET reported Mr Patel’s resignation in its late edition dated August 8, 2008.
People familiar with the development say that Mr Patel’s resignation was “just a matter of time” as he was perceived to be quite close to Shekhar Datta, who himself resigned abruptly from the post of chairman in June.
BSE insiders say Mr Patel was instrumental in mustering support for Mr Datta’s election as BSE chairman in 2007, replacing Jagdish Capoor. Mr Capoor is now back as chairman of the exchange, taking over from Mr Datta. Circles close to Mr Patel cite increasing interference from some of the broker members on the board as one of the reasons for his sudden exit. Mr Patel was unavailable for comment. But there are allegations of wrong-doings against Mr Patel too.
While the truth may lie somewhere in between, the latest chapter in the saga of BSE board room battles once again highlights the issue of clash of interests originating out of the presence of broker members on the board.
BSE needs a braveheart to reverse its flagging fortunes
BSE brokers rue that they have been marginalised due to lack of adequate representation on the board. The 12-member BSE board has three brokers — Prakash R Kacholia of Emkay Share and Stock Brokers, Balkishan Mohta and Siddharth J Shah of JGA Shah Share Brokers. Some feel that having more brokers on the board would help as they would be aware of the business realities. But then, BSE brokers have not exactly covered themselves in glory in the past, when given a free hand.
So, should the NSE model of zero broker representation on the board be followed? After all, it has worked fine, though brokers have often complained of high-handedness by the exchange. Those unhappy with NSE’s policies can surrender memberships is the bourse’s attitude to brokers, they say.
Leading brokers, who were optimistic of a revival in the exchange’s fortunes after Deutsche Borse took 5% stake in BSE at Rs 5,200 per share have all but given up hope. The value of a BSE share has reportedly fallen to nearly Rs 4,000.
During Mr Datta’s tenure as BSE chairman, Mr Patel was heading several important committees, including the one on derivatives. This committee is believed to have played an important role in signing the technology agreement with OMX costing $37.50 million, to improve BSE’s trading software for derivatives.
“There was absolutely no need for such an expensive agreement,” says a person who has worked with the exchange. “It is going to take not less than an year and a half for the platform to be delivered if the deal passes muster,” he added. The deal is believed to be under review by the BSE board that last met on July 26. Mr Patel did not attend that meet, citing “health reasons”.
Incidentally, the meeting assumes significance, given the fact that it was the second board meet in the same month (the first was on July 12). This, according to exchange officials, was the first sign that something was amiss within the board. Officials also say that Mr Patel was “not attending office on all days in the recent past”.
Starting his career in the exchange as director (surveillance and inspection) in 2001, Mr Patel rapidly moved up the ranks to become CEO in 2004, succeeding Manoj Vaish who quit to join a market research firm. His meteoric rise notwithstanding, Mr Patel marks his exit from the exchange as yet another boss who has been unable to reverse the BSE’s flagging fortunes, from the time it lost market leadership to rival NSE.
The immediate challenge for Asia’s oldest bourse is to find someone who will be willing to pick up the baton from where Mr Patel has left. Given the unsavoury track record of board room conspiracies and the near-insurmountable gap in market share, it will require a braveheart to throw his hat into the ring.
The BSE desperately needs to carve out for itself a meaningful presence in the derivatives segment if it is to nurse any hopes of improving market share. Market-watchers feel some innovative product is badly needed, as the NSE scores way up on liquidity.
Combining cash and derivatives volumes on any given day, BSE’s market share barely works out to 10%. Its market share in the cash segment has remained constant between 35-40%, but its biggest failing has been the derivatives segment, where it has no presence worth mentioning.
The BSE’s benchmark index, Sensex, may have a better brand recall compared with the NSE’s Nifty. But it is the Nifty futures which institutional investors turn to for hedging their portfolio. The same holds true for traders. A significant chunk of the NSE’s cash market volumes results from the arbitrage between the cash and futures market. To add to BSE’s woes, some of the recent changes in the margining system are expected to further erode BSE’s market share.
In May this year, the Securities and Exchange Board of India allowed cross-margining between cash and derivatives segments, under which an investor buying a stock in which he already has a short position in the futures segment will not have to pay the value-at-risk (VaR) margin twice over. An investor would be able to avail of this facility only if both his cash and derivative market positions are on the same exchange. Since much of the derivatives trading takes place only on the NSE, more business is expected to shift to that bourse.
Other threats loom, but there are also opportunities if the BSE is willing to make a tectonic shift. The BSE should ensure that its failure in equity derivatives should not be repeated with currency futures trading which is expected to commence soon. The exchange has to revive its Indonext platform that it does not lose these firms to a dedicated exchange for small and medium enterprises in future.
Santosh Nair & Ashish Rukhaiyar
MUMBAI
TOP ranking officials of Asia’s oldest stock exchange BSE and Indian cricketers seem to have one thing in common — few have been able to make a graceful exit. Rumours of BSE chief executive and managing director Rajnikant Patel’s resignation had been doing the rounds for quite some time. When he finally put in his papers late on Thursday after cutting short a trip to Hyderabad where he had gone on an official visit, it was the second controversial exit of a board member of the exchange in less than two months. ET reported Mr Patel’s resignation in its late edition dated August 8, 2008.
People familiar with the development say that Mr Patel’s resignation was “just a matter of time” as he was perceived to be quite close to Shekhar Datta, who himself resigned abruptly from the post of chairman in June.
BSE insiders say Mr Patel was instrumental in mustering support for Mr Datta’s election as BSE chairman in 2007, replacing Jagdish Capoor. Mr Capoor is now back as chairman of the exchange, taking over from Mr Datta. Circles close to Mr Patel cite increasing interference from some of the broker members on the board as one of the reasons for his sudden exit. Mr Patel was unavailable for comment. But there are allegations of wrong-doings against Mr Patel too.
While the truth may lie somewhere in between, the latest chapter in the saga of BSE board room battles once again highlights the issue of clash of interests originating out of the presence of broker members on the board.
BSE needs a braveheart to reverse its flagging fortunes
BSE brokers rue that they have been marginalised due to lack of adequate representation on the board. The 12-member BSE board has three brokers — Prakash R Kacholia of Emkay Share and Stock Brokers, Balkishan Mohta and Siddharth J Shah of JGA Shah Share Brokers. Some feel that having more brokers on the board would help as they would be aware of the business realities. But then, BSE brokers have not exactly covered themselves in glory in the past, when given a free hand.
So, should the NSE model of zero broker representation on the board be followed? After all, it has worked fine, though brokers have often complained of high-handedness by the exchange. Those unhappy with NSE’s policies can surrender memberships is the bourse’s attitude to brokers, they say.
Leading brokers, who were optimistic of a revival in the exchange’s fortunes after Deutsche Borse took 5% stake in BSE at Rs 5,200 per share have all but given up hope. The value of a BSE share has reportedly fallen to nearly Rs 4,000.
During Mr Datta’s tenure as BSE chairman, Mr Patel was heading several important committees, including the one on derivatives. This committee is believed to have played an important role in signing the technology agreement with OMX costing $37.50 million, to improve BSE’s trading software for derivatives.
“There was absolutely no need for such an expensive agreement,” says a person who has worked with the exchange. “It is going to take not less than an year and a half for the platform to be delivered if the deal passes muster,” he added. The deal is believed to be under review by the BSE board that last met on July 26. Mr Patel did not attend that meet, citing “health reasons”.
Incidentally, the meeting assumes significance, given the fact that it was the second board meet in the same month (the first was on July 12). This, according to exchange officials, was the first sign that something was amiss within the board. Officials also say that Mr Patel was “not attending office on all days in the recent past”.
Starting his career in the exchange as director (surveillance and inspection) in 2001, Mr Patel rapidly moved up the ranks to become CEO in 2004, succeeding Manoj Vaish who quit to join a market research firm. His meteoric rise notwithstanding, Mr Patel marks his exit from the exchange as yet another boss who has been unable to reverse the BSE’s flagging fortunes, from the time it lost market leadership to rival NSE.
The immediate challenge for Asia’s oldest bourse is to find someone who will be willing to pick up the baton from where Mr Patel has left. Given the unsavoury track record of board room conspiracies and the near-insurmountable gap in market share, it will require a braveheart to throw his hat into the ring.
The BSE desperately needs to carve out for itself a meaningful presence in the derivatives segment if it is to nurse any hopes of improving market share. Market-watchers feel some innovative product is badly needed, as the NSE scores way up on liquidity.
Combining cash and derivatives volumes on any given day, BSE’s market share barely works out to 10%. Its market share in the cash segment has remained constant between 35-40%, but its biggest failing has been the derivatives segment, where it has no presence worth mentioning.
The BSE’s benchmark index, Sensex, may have a better brand recall compared with the NSE’s Nifty. But it is the Nifty futures which institutional investors turn to for hedging their portfolio. The same holds true for traders. A significant chunk of the NSE’s cash market volumes results from the arbitrage between the cash and futures market. To add to BSE’s woes, some of the recent changes in the margining system are expected to further erode BSE’s market share.
In May this year, the Securities and Exchange Board of India allowed cross-margining between cash and derivatives segments, under which an investor buying a stock in which he already has a short position in the futures segment will not have to pay the value-at-risk (VaR) margin twice over. An investor would be able to avail of this facility only if both his cash and derivative market positions are on the same exchange. Since much of the derivatives trading takes place only on the NSE, more business is expected to shift to that bourse.
Other threats loom, but there are also opportunities if the BSE is willing to make a tectonic shift. The BSE should ensure that its failure in equity derivatives should not be repeated with currency futures trading which is expected to commence soon. The exchange has to revive its Indonext platform that it does not lose these firms to a dedicated exchange for small and medium enterprises in future.
Brokers find few takers for BSE shares
BSE Members Find It Difficult To Sell
Their Holdings Even At A Steep Discount
Aug 05, 2008
Ashish Rukhaiyar & Santosh Nair
MUMBAI
THE downtrend in the stockmarket has claimed an unexpected victim. Asia’s oldest stock exchange, which saw its benchmark index falling over 40% from its peak, is now facing a drop in its own share price. People familiar with the development say some members are ready to sell BSE shares at a discount to the price at which they received it when the exchange was demutualised in 2007.
“I would be happy if I could get Rs 4,800 (per share),” says Arun Sureka, an investor who is holding 877 shares in BSE. He also claims to know two other investors, who are holding a similar quantity of shares and looking for an exit. Since a trading platform is not available for BSE shares, brokers do not have much option, but to call fellow brokers to enquire about any interested entities.
It is believed that the low business volume in the cash segment of BSE, coupled with the insignificant derivatives turnover has affected valuations. The lack of clarity over the proposed listing of the shares is also playing spoilsport. The immediate trigger for the share sale is attributed to the steep fall in the income of most brokers who are now looking at alternate sources of revenue.
Brokers, however, have been disappointed as the value of the shares has fallen and there are not many interested buyers in the market. The Bombay Stock Exchange completed the demutualisation process in May 2007 when it placed 51% of its equity with 21 investors, including Singapore Exchange and Deutsche Borse.
A BSE release at that time said the fresh issue and placement of shares in the offer for sale were priced at Rs 5,200 per share, pegging the market capitalisation of BSE at around $1 billion. At the time of demutualisation, BSE broker-members were given 10,000 shares of the exchange for every single card held.
The developments come close on the heels of SBI’s decision to sell a part of its holding in the National Stock Exchange (NSE). According to people close to the development, the bank is hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for NSE.
A market observer, when questioned about the current value of BSE shares, said it was difficult for anyone to extract a price of more than Rs 4,500 per share due to the dismal performance of the exchange in terms of business volume and also due to the fact that the interest in equity market has dwindled.
“The growth in business volume of BSE has not been as much as that of NSE and so the valuations have come down,” he said. A fall in benchmark indices in the period between May 2007 and the present can also act as a barometer for the BSE share price, he added.
Another factor that is believed to have impacted the share price is that of size. Brokers who are currently willing to sell their shares are doing so in small lots and so not many fellow brokers are interested.
Also, foreign entities cannot be sounded out, as the maximum permissible limit of foreign holding in the exchange has already been reached. Many large-sized brokerages, interestingly, feel that the share would fetch a far higher price if done by renowned entities.
THE BEAR MINIMUM
* Broker members were given shares in May 2007 when BSE was demutualised
* Brokers got 10,000 shares at Rs 5,200 per share for each BSE card
* Proposed listing of BSE would have provided trading platform for its shares
* With listing nowhere in sight, brokers & other shareholders looking for ways to sell these shares
* There are not many entities that are ready to offer over Rs 5,000 for these shares
* BSE losing share to its much newer counterpart NSE believed to have affected its valuations
* NSE’s valuation is said to be around $4 billion, while BSE’s pegged around $1 billion
Their Holdings Even At A Steep Discount
Aug 05, 2008
Ashish Rukhaiyar & Santosh Nair
MUMBAI
THE downtrend in the stockmarket has claimed an unexpected victim. Asia’s oldest stock exchange, which saw its benchmark index falling over 40% from its peak, is now facing a drop in its own share price. People familiar with the development say some members are ready to sell BSE shares at a discount to the price at which they received it when the exchange was demutualised in 2007.
“I would be happy if I could get Rs 4,800 (per share),” says Arun Sureka, an investor who is holding 877 shares in BSE. He also claims to know two other investors, who are holding a similar quantity of shares and looking for an exit. Since a trading platform is not available for BSE shares, brokers do not have much option, but to call fellow brokers to enquire about any interested entities.
It is believed that the low business volume in the cash segment of BSE, coupled with the insignificant derivatives turnover has affected valuations. The lack of clarity over the proposed listing of the shares is also playing spoilsport. The immediate trigger for the share sale is attributed to the steep fall in the income of most brokers who are now looking at alternate sources of revenue.
Brokers, however, have been disappointed as the value of the shares has fallen and there are not many interested buyers in the market. The Bombay Stock Exchange completed the demutualisation process in May 2007 when it placed 51% of its equity with 21 investors, including Singapore Exchange and Deutsche Borse.
A BSE release at that time said the fresh issue and placement of shares in the offer for sale were priced at Rs 5,200 per share, pegging the market capitalisation of BSE at around $1 billion. At the time of demutualisation, BSE broker-members were given 10,000 shares of the exchange for every single card held.
The developments come close on the heels of SBI’s decision to sell a part of its holding in the National Stock Exchange (NSE). According to people close to the development, the bank is hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for NSE.
A market observer, when questioned about the current value of BSE shares, said it was difficult for anyone to extract a price of more than Rs 4,500 per share due to the dismal performance of the exchange in terms of business volume and also due to the fact that the interest in equity market has dwindled.
“The growth in business volume of BSE has not been as much as that of NSE and so the valuations have come down,” he said. A fall in benchmark indices in the period between May 2007 and the present can also act as a barometer for the BSE share price, he added.
Another factor that is believed to have impacted the share price is that of size. Brokers who are currently willing to sell their shares are doing so in small lots and so not many fellow brokers are interested.
Also, foreign entities cannot be sounded out, as the maximum permissible limit of foreign holding in the exchange has already been reached. Many large-sized brokerages, interestingly, feel that the share would fetch a far higher price if done by renowned entities.
THE BEAR MINIMUM
* Broker members were given shares in May 2007 when BSE was demutualised
* Brokers got 10,000 shares at Rs 5,200 per share for each BSE card
* Proposed listing of BSE would have provided trading platform for its shares
* With listing nowhere in sight, brokers & other shareholders looking for ways to sell these shares
* There are not many entities that are ready to offer over Rs 5,000 for these shares
* BSE losing share to its much newer counterpart NSE believed to have affected its valuations
* NSE’s valuation is said to be around $4 billion, while BSE’s pegged around $1 billion
Umpire Sebi has its job cut out in NSDL, CDSL war
Aug 04, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
IT REMINDS you of a boxing match, where the referee has to constantly separate the two fighters to ensure that they do not endanger each other’s health. The boxers, in this case, are the two depository service providers — NSDL and CDSL — and playing referee is the Securities and Exchange Board of India (Sebi). At stake is the clientele of over three crore Indian investors.
Over the past one year, the two premier stock depositories have been at each other’s throat on a host of issues. This is good news for investors, as charges have been falling because of the ongoing competition. But the constant feuding is a headache for market regulator Sebi, which has had to intervene frequently to cool down tempers.
A delicate task for Sebi chairman CB Bhave, considering that he headed NSDL before taking up the assignment at Sebi. Mr Bhave had been with National Stock Exchange-promoted depository since its inception in 1996. This ongoing war could only intensify in future, considering CDSL is fast catching up with market leader NSDL. In the past one year, the number of demat accounts with NSDL has been stagnant around 75 lakh. In comparison, demat accounts with Bombay Stock Exchange-promoted CDSL have more than doubled to 52 lakh during the same period.
In December last year, several investors and brokers on the BSE and NSE suffered losses after they sold shares that had been bought in the previous session, assuming that the shares had already been credited to their accounts. But due to a technical glitch in the transfer of data between the two depositories, the shares had not been credited. Since neither depository was willing to accept responsibility for the incident, Sebi had to appoint an independent inquiry panel consisting of experts from consultancy firm PwC.
Another issue over which the two depositories are at loggerheads is the ‘in-person verification’. This disclosure norm requires that brokerages send their ‘representatives’ to verify the details of a person who wishes to open a demat account. (This was one of the anti-money laundering measures put in place after the IPO scam). Since the rule was loosely worded, brokers passed on the responsibility to their sub-brokers or even franchisees.
At least, CDSL did not insist that a person from the brokerage itself should do the verification. But in April this year, Sebi wrote a letter to both depositories, saying that henceforth only officials from the main brokerage would be allowed to conduct these inspections. A NSDL official said the depository had always followed this rule. Incidentally, members from the broking community have requested Sebi to relax this norm, saying it was not economically viable in the case of many upcountry branches.
CDSL was formed in 1999, and has been aggressive in its efforts to gain market share. However it is understandable, considering that NSDL had a three-year headstart. But some of CDSL’s tactics have been criticised as predatory. For instance, CDSL started the practice of offering rebates to certain brokerages, presumably to get them encourage clients to open demat accounts with CDSL. This irked NSDL, which did not have a policy of rebates. The dispute went to Sebi, which ruled against any rebates, forcing CDSL roll them back.
“The rebate we offer is essentially a commercial decision, why should anybody interfere with that?,” asks a CDSL official who points out that the names of the brokerages being offered rebates were put up on the CDSL website.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
IT REMINDS you of a boxing match, where the referee has to constantly separate the two fighters to ensure that they do not endanger each other’s health. The boxers, in this case, are the two depository service providers — NSDL and CDSL — and playing referee is the Securities and Exchange Board of India (Sebi). At stake is the clientele of over three crore Indian investors.
Over the past one year, the two premier stock depositories have been at each other’s throat on a host of issues. This is good news for investors, as charges have been falling because of the ongoing competition. But the constant feuding is a headache for market regulator Sebi, which has had to intervene frequently to cool down tempers.
A delicate task for Sebi chairman CB Bhave, considering that he headed NSDL before taking up the assignment at Sebi. Mr Bhave had been with National Stock Exchange-promoted depository since its inception in 1996. This ongoing war could only intensify in future, considering CDSL is fast catching up with market leader NSDL. In the past one year, the number of demat accounts with NSDL has been stagnant around 75 lakh. In comparison, demat accounts with Bombay Stock Exchange-promoted CDSL have more than doubled to 52 lakh during the same period.
In December last year, several investors and brokers on the BSE and NSE suffered losses after they sold shares that had been bought in the previous session, assuming that the shares had already been credited to their accounts. But due to a technical glitch in the transfer of data between the two depositories, the shares had not been credited. Since neither depository was willing to accept responsibility for the incident, Sebi had to appoint an independent inquiry panel consisting of experts from consultancy firm PwC.
Another issue over which the two depositories are at loggerheads is the ‘in-person verification’. This disclosure norm requires that brokerages send their ‘representatives’ to verify the details of a person who wishes to open a demat account. (This was one of the anti-money laundering measures put in place after the IPO scam). Since the rule was loosely worded, brokers passed on the responsibility to their sub-brokers or even franchisees.
At least, CDSL did not insist that a person from the brokerage itself should do the verification. But in April this year, Sebi wrote a letter to both depositories, saying that henceforth only officials from the main brokerage would be allowed to conduct these inspections. A NSDL official said the depository had always followed this rule. Incidentally, members from the broking community have requested Sebi to relax this norm, saying it was not economically viable in the case of many upcountry branches.
CDSL was formed in 1999, and has been aggressive in its efforts to gain market share. However it is understandable, considering that NSDL had a three-year headstart. But some of CDSL’s tactics have been criticised as predatory. For instance, CDSL started the practice of offering rebates to certain brokerages, presumably to get them encourage clients to open demat accounts with CDSL. This irked NSDL, which did not have a policy of rebates. The dispute went to Sebi, which ruled against any rebates, forcing CDSL roll them back.
“The rebate we offer is essentially a commercial decision, why should anybody interfere with that?,” asks a CDSL official who points out that the names of the brokerages being offered rebates were put up on the CDSL website.
Thursday 31 July 2008
Brokers to let you trade directly
Foreign Broking Houses Target
Funds With Direct Market Access
Jul 31, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
LEADING foreign brokerages along with stock exchanges are preparing the ground for operationalising Direct Market Access (DMA), a facility that will allow funds to buy and sell stocks without the intermediation of a broker.
In the past few weeks, brokerages such as Citi, Merrill Lynch, Morgan Stanley, JP Morgan, Goldman Sachs, CLSA and Deutsche Equities have been holding test runs of their DMA software, in an attempt to synchronise it with the systems at the stock exchange. These players are hoping that hedge funds entering India would find the product attractive. But it could be a while before the process is fully operational as exchanges may roll out the facility in a phased manner.
The DMA facility enables institutional investors like funds to access the exchange trading system through brokers’ infrastructure but without the manual intervention of a broker. Popular abroad, DMA allows certain funds, especially those using algorithmic or programme trading, to have direct control over their orders. However, there have been doubts from certain quarters on its business sense in the Indian context.
“Since there is no human intervention involved, broking houses would have to initially make some investments on the technology front,” says Jayesh Mehta, head of institutional coverage group at Merrill Lynch. “But as the facility becomes popular, volumes will pick up and profitability will not be an issue,” he adds.
But things are easiest for MNC broking houses, since they already service many international hedge funds through the DMA route in their offices outside India. Houses like Citi and Merrill have their proprietary software while Indian brokerages will have to procure it from agencies abroad.
But Girish Dev, CEO of Networth Stock Broking, which has also applied for this facility, says this is no reason why Indian brokerages should be left behind foreign ones on the DMA front. Networth, like many other domestic entities, have decided to use a platform called FTNet that has been developed by Financial Technologies.
Broking officials say bulk of the domestic entities would be using such a third-party platform to avoid the huge costs involved in developing a platform from scratch. Quite a few other domestic entities, including India Infoline, Reliance Equities International and Motilal Oswal are also believed to have shown an interest in offering DMA facility to their clients.
Funds With Direct Market Access
Jul 31, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
LEADING foreign brokerages along with stock exchanges are preparing the ground for operationalising Direct Market Access (DMA), a facility that will allow funds to buy and sell stocks without the intermediation of a broker.
In the past few weeks, brokerages such as Citi, Merrill Lynch, Morgan Stanley, JP Morgan, Goldman Sachs, CLSA and Deutsche Equities have been holding test runs of their DMA software, in an attempt to synchronise it with the systems at the stock exchange. These players are hoping that hedge funds entering India would find the product attractive. But it could be a while before the process is fully operational as exchanges may roll out the facility in a phased manner.
The DMA facility enables institutional investors like funds to access the exchange trading system through brokers’ infrastructure but without the manual intervention of a broker. Popular abroad, DMA allows certain funds, especially those using algorithmic or programme trading, to have direct control over their orders. However, there have been doubts from certain quarters on its business sense in the Indian context.
“Since there is no human intervention involved, broking houses would have to initially make some investments on the technology front,” says Jayesh Mehta, head of institutional coverage group at Merrill Lynch. “But as the facility becomes popular, volumes will pick up and profitability will not be an issue,” he adds.
But things are easiest for MNC broking houses, since they already service many international hedge funds through the DMA route in their offices outside India. Houses like Citi and Merrill have their proprietary software while Indian brokerages will have to procure it from agencies abroad.
But Girish Dev, CEO of Networth Stock Broking, which has also applied for this facility, says this is no reason why Indian brokerages should be left behind foreign ones on the DMA front. Networth, like many other domestic entities, have decided to use a platform called FTNet that has been developed by Financial Technologies.
Broking officials say bulk of the domestic entities would be using such a third-party platform to avoid the huge costs involved in developing a platform from scratch. Quite a few other domestic entities, including India Infoline, Reliance Equities International and Motilal Oswal are also believed to have shown an interest in offering DMA facility to their clients.
Gold funds scorch returns charts
Jul 24, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
INDIAN stocks may have rebounded in what may be a stellar show, but the showstealer in terms of delivering maximum returns to investors in mutual funds over the past year has been one of the most unlikely class of funds. Mutual fund schemes that invest in gold and companies associated with the precious metal have been topping the returns chart, performing better than any of the equity or debt funds.
Rising crude oil prices, weakening dollar and growing geo-political concerns have fuelled a tremendous rise in gold prices. However, the jury is still not out on whether this momentum can be sustained over the next few months.
Picture this. If you had invested Rs 10,000 in Sensex or Nifty one year back, your investment would have shrunk to about Rs 8,800. However a similar amount invested in gold (or gold ETF) would have grown to over Rs 15,000.
There are six gold exchange-traded funds from as many fund houses in the country that simply track the prices of gold, while two from DSP Merrill Lynch and AIG that invest in stocks of companies associated with gold mining. While these two funds delivered comparatively modest returns, since stocks globally have been caught in the bear grip, ETFs have posted a return of more than 50% in the past year.
“It’s the uncertainty in the financial markets that is propelling gold upwards,” says Devendra Nevgi, CEO and CIO, Quantum AMC, which also offers a gold ETF. He says that depreciation in the dollar against other currencies; rising inflation and crude oil prices have attracted investors to this asset class.
As for gold ETFs, Mr Nevgi says that the younger generation is slowly coming to accept them as an easy route to more effective asset allocation, considering that gold ETF as a concept is just about four years old. The first gold ETF was launched in the US in 2004.
However, returns form the gold fund by DSP Merrill Lynch MF, a super performer at the beginning a few months ago have cooled down. Thanks to the mediocre performance of gold stocks in relation to gold itself, especially big-league stocks such as Barrick or Goldcorp, it is just delivering a return of 10% Although, this is far superior to equity funds that have seen their portfolios erode during the same period.
Most analysts say that the long-term trend for gold remains bullish, as the overall strength of the dollar remains a key question. “On the physical side, worldwide fabrication (jewellery) demand has slowed down, but to a certain extent has been compensated by investment demand. Fears of financial and geopolitical risk also continue to weigh on price,” says Mandar Pote of Angel Commodities in a report to clients. Mr Nevgi also is bullish on gold prices saying that all the factors that led to its rise are still at work.
But, gold fell its highest in four weeks on Wednesday, as crude oil prices fell after US treasury secretary Henry Paulson voiced support for the currency and after the president of the Federal Reserve Bank of Philadelphia said that interest rates should be raised.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
INDIAN stocks may have rebounded in what may be a stellar show, but the showstealer in terms of delivering maximum returns to investors in mutual funds over the past year has been one of the most unlikely class of funds. Mutual fund schemes that invest in gold and companies associated with the precious metal have been topping the returns chart, performing better than any of the equity or debt funds.
Rising crude oil prices, weakening dollar and growing geo-political concerns have fuelled a tremendous rise in gold prices. However, the jury is still not out on whether this momentum can be sustained over the next few months.
Picture this. If you had invested Rs 10,000 in Sensex or Nifty one year back, your investment would have shrunk to about Rs 8,800. However a similar amount invested in gold (or gold ETF) would have grown to over Rs 15,000.
There are six gold exchange-traded funds from as many fund houses in the country that simply track the prices of gold, while two from DSP Merrill Lynch and AIG that invest in stocks of companies associated with gold mining. While these two funds delivered comparatively modest returns, since stocks globally have been caught in the bear grip, ETFs have posted a return of more than 50% in the past year.
“It’s the uncertainty in the financial markets that is propelling gold upwards,” says Devendra Nevgi, CEO and CIO, Quantum AMC, which also offers a gold ETF. He says that depreciation in the dollar against other currencies; rising inflation and crude oil prices have attracted investors to this asset class.
As for gold ETFs, Mr Nevgi says that the younger generation is slowly coming to accept them as an easy route to more effective asset allocation, considering that gold ETF as a concept is just about four years old. The first gold ETF was launched in the US in 2004.
However, returns form the gold fund by DSP Merrill Lynch MF, a super performer at the beginning a few months ago have cooled down. Thanks to the mediocre performance of gold stocks in relation to gold itself, especially big-league stocks such as Barrick or Goldcorp, it is just delivering a return of 10% Although, this is far superior to equity funds that have seen their portfolios erode during the same period.
Most analysts say that the long-term trend for gold remains bullish, as the overall strength of the dollar remains a key question. “On the physical side, worldwide fabrication (jewellery) demand has slowed down, but to a certain extent has been compensated by investment demand. Fears of financial and geopolitical risk also continue to weigh on price,” says Mandar Pote of Angel Commodities in a report to clients. Mr Nevgi also is bullish on gold prices saying that all the factors that led to its rise are still at work.
But, gold fell its highest in four weeks on Wednesday, as crude oil prices fell after US treasury secretary Henry Paulson voiced support for the currency and after the president of the Federal Reserve Bank of Philadelphia said that interest rates should be raised.
Market players may have to hike capital
Jul 11, 2008
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THE operating rules for stock brokers and other capital market intermediaries may soon be redrawn, a move which could force all these players to bolster their capital. Stock market regulator Sebi is reviewing the capital requirements of brokers and other market intermediaries, said people familiar with the development.
Sebi is reportedly vetting a proposal, under which the net worth norms for intermediaries will be redefined according to the risk each of its arms is incurring in its operations. The risk-based capital model being considered, on the lines of the banking industry, could cover all intermediaries such as brokers, custodians, depository participants, investment banks, depositories, registrars and perhaps rating agencies too, they said.
The aim is to ensure more well-capitalised entities in the market, which have the underlying strength to assume risks without causing undue disruption to the financial markets in the event of any failure.
Old-time brokers to feel the heat of changes
THIS is a far cry from the current scenario. Market intermediaries now need to adhere only to a flat net worth norm, even if their activities span broking, investment banking, asset management and depository services through separate arms. One of the steps under consideration is assigning specific values to each of these activities, based on risk profile and then computing the total capital required for the intermediary.
Besides, separate net worth norms may have to be assigned for each of the myriad activities that the intermediary undertakes, such as trading on the BSE, NSE, custodial services and so on. As of now, there is no relation between the brokers’ net worth and the margins they have to deposit while taking a exposure in any of the exchanges. This too is under review. For instance, going by the current norms, a small stock broking house which has a net worth of Rs 10 crore is on par with a larger outfit which boasts of a net worth of Rs 500 crore. Sebi’s review seeks to address this discrepancy.
According to the current norms, stock brokers have to deposit Rs 1.25 crore as base capital with the stock exchanges in order to start trading. For merchant bankers, the minimum net worth requirement is Rs 5 crore, while for registrars it is Rs 1.25 crore.
The regulator is learnt to be working on the concept of permanent registration for market intermediaries. Currently, merchant bankers have to shell out Rs 10 lakh as licence fees for three years, after which the renewal fee has been fixed at Rs 5 lakh. For credit rating agencies and depositories, the net worth requirement is as high as Rs 100 crore.
If the proposal is finally approved, stock brokers would have to beef up their capital, squeezing out some of the smaller broking outfits. Market watchers say that the move could well be a trigger for consolidation in the market.
Indian broking houses are reckoned to be highly under-capitalised. Across the world, it is banks who control the biggies among brokerages, since it is a capital-intensive business. The rationale offered is that banks can offer the capital needed for better financial risk management. But since this is not the case in India, the alternative is to increase the net worth of brokers.
Besides, the markets regulator is also believed to hold the view that there has been a sea change since the norms were last notified. Given the seismic changes in the Indian stock markets, there is a strong case for reviewing the net worth requirements of brokers and other intermediaries, some market participants said.
Market participants say that oldtime brokers would feel the heat if the proposed regulations take effect, as many of them have managed to trade on the BSE without any capital requirements. Before the demutualisation of BSE, brokers paid only a few lakhs to get the BSE membership card, that made them eligible for trading on the exchange. After demutualisation, these members automatically became trading members of the exchange, thus saving on the base capital requirements. According to industry sources, there are more than 700 such BSE card holders. Incidentally, the last such lot of BSE cards was issued in 1994, when entities had to dole out Rs 55 lakh for each card.
“This is the first step of reforms for enabling consolidation in the broking industry,” said the compliance officer with a domestic brokerage. “Oldtimers, especially BSE members, would be worst-hit as they are used to trading without any base capital requirements. They would be forced to shell out more than a crore rupees to continue their business,” he added.
Sebi has formed a core group of prominent experts including top Sebi officials, securities lawyers and heads of leading brokerages. This core group has several sub-committees dedicated to specific intermediaries like brokerages, depository participants, asset management companies and have had meetings over the last few weeks to provide suggestions.
The large dips in the stock indices this January and the subsequent inability of many brokers to provide adequate margins once again brought to the fore the risk in the financial markets due to the minuscule net worth norm that applies to brokers.
Gaurav Pai & Ashish Rukhaiyar
MUMBAI
THE operating rules for stock brokers and other capital market intermediaries may soon be redrawn, a move which could force all these players to bolster their capital. Stock market regulator Sebi is reviewing the capital requirements of brokers and other market intermediaries, said people familiar with the development.
Sebi is reportedly vetting a proposal, under which the net worth norms for intermediaries will be redefined according to the risk each of its arms is incurring in its operations. The risk-based capital model being considered, on the lines of the banking industry, could cover all intermediaries such as brokers, custodians, depository participants, investment banks, depositories, registrars and perhaps rating agencies too, they said.
The aim is to ensure more well-capitalised entities in the market, which have the underlying strength to assume risks without causing undue disruption to the financial markets in the event of any failure.
Old-time brokers to feel the heat of changes
THIS is a far cry from the current scenario. Market intermediaries now need to adhere only to a flat net worth norm, even if their activities span broking, investment banking, asset management and depository services through separate arms. One of the steps under consideration is assigning specific values to each of these activities, based on risk profile and then computing the total capital required for the intermediary.
Besides, separate net worth norms may have to be assigned for each of the myriad activities that the intermediary undertakes, such as trading on the BSE, NSE, custodial services and so on. As of now, there is no relation between the brokers’ net worth and the margins they have to deposit while taking a exposure in any of the exchanges. This too is under review. For instance, going by the current norms, a small stock broking house which has a net worth of Rs 10 crore is on par with a larger outfit which boasts of a net worth of Rs 500 crore. Sebi’s review seeks to address this discrepancy.
According to the current norms, stock brokers have to deposit Rs 1.25 crore as base capital with the stock exchanges in order to start trading. For merchant bankers, the minimum net worth requirement is Rs 5 crore, while for registrars it is Rs 1.25 crore.
The regulator is learnt to be working on the concept of permanent registration for market intermediaries. Currently, merchant bankers have to shell out Rs 10 lakh as licence fees for three years, after which the renewal fee has been fixed at Rs 5 lakh. For credit rating agencies and depositories, the net worth requirement is as high as Rs 100 crore.
If the proposal is finally approved, stock brokers would have to beef up their capital, squeezing out some of the smaller broking outfits. Market watchers say that the move could well be a trigger for consolidation in the market.
Indian broking houses are reckoned to be highly under-capitalised. Across the world, it is banks who control the biggies among brokerages, since it is a capital-intensive business. The rationale offered is that banks can offer the capital needed for better financial risk management. But since this is not the case in India, the alternative is to increase the net worth of brokers.
Besides, the markets regulator is also believed to hold the view that there has been a sea change since the norms were last notified. Given the seismic changes in the Indian stock markets, there is a strong case for reviewing the net worth requirements of brokers and other intermediaries, some market participants said.
Market participants say that oldtime brokers would feel the heat if the proposed regulations take effect, as many of them have managed to trade on the BSE without any capital requirements. Before the demutualisation of BSE, brokers paid only a few lakhs to get the BSE membership card, that made them eligible for trading on the exchange. After demutualisation, these members automatically became trading members of the exchange, thus saving on the base capital requirements. According to industry sources, there are more than 700 such BSE card holders. Incidentally, the last such lot of BSE cards was issued in 1994, when entities had to dole out Rs 55 lakh for each card.
“This is the first step of reforms for enabling consolidation in the broking industry,” said the compliance officer with a domestic brokerage. “Oldtimers, especially BSE members, would be worst-hit as they are used to trading without any base capital requirements. They would be forced to shell out more than a crore rupees to continue their business,” he added.
Sebi has formed a core group of prominent experts including top Sebi officials, securities lawyers and heads of leading brokerages. This core group has several sub-committees dedicated to specific intermediaries like brokerages, depository participants, asset management companies and have had meetings over the last few weeks to provide suggestions.
The large dips in the stock indices this January and the subsequent inability of many brokers to provide adequate margins once again brought to the fore the risk in the financial markets due to the minuscule net worth norm that applies to brokers.
SBI may pocket Rs 300 cr from NSE stake cut
Jul 04, 2008
Ashish Rukhaiyar
MUMBAI
INDIA’S largest bank State Bank of India (SBI) has decided to sell a part of its holding in the National Stock Exchange (NSE), a move which is expected to fetch over Rs 300 crore for the bank.
SBI, which helped promote the exchange over 15 years ago along with a clutch of Indian financial institutions and banks, has an equity holding of 8.5%. The decision to reduce the holding has been prompted by rules on ownership of exchanges framed by the government. According to these rules, the equity holding of a single entity has been capped at 5%. Shareholders, who control more than 5%, will need to shed a part of their holdings to conform to these norms.
Senior bank officials said that they were hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for the exchange. The bank has appointed its broking subsidiary SBICAP Securities to scout for potential buyers for shares it is putting on the block.
An official, who is privy to the development, said that SBI’s reserve price of Rs 315 crore is benchmarked to an earlier transaction in which the Life Insurance Corporation (LIC) had sold a part of its NSE stake at Rs 3,501 per share in March 2008. Considering that SBI is looking at selling nine lakh NSE shares, the reserve price has been pegged at Rs 315 crore. Meanwhile, in recent months, SBI’s merchant banking wing SBI Capital Markets, too, has reduced its stake in NSE from 5.6% to 4.3%.
The stake sale comes at a time when banks are struggling to boost their profits. Most banks will have to provide for their huge depreciation on the treasury portfolio due to rising yields in government bonds and a slump in the equity market. Analyst say that the sale of NSE shares will help them offset a part of provisions on treasury books.
“If the bank does not receive bids at attractive price, we may be forced to postpone plans to sell the stake right now. As such, the Securities and Exchange Board of India (Sebi) has not set any deadline to lower the stake,” said senior bank officials. Further, SBI will be able to offload its shares in NSE only to domestic institutions as the foreign holding in the exchange has already touched the maximum permissible limit of 26%.
People familiar with the development say that the bank is also open to divesting small chunk of shares to different entities. This, in effect, would lead to another round of sale where various entities would end up with marginal stake in the stock exchange.
Rules governing the ownership of stock exchanges stipulate that any single entity buying more than 1% in any of the stock exchanges, would have to obtain a “fit and proper” certificate from Sebi.
In March 2007, Morgan Stanley (3%), Citigroup (2%) and Actis (1%) collectively bought 6% stake in NSE, when various stakeholders like IDBI, SBI, SBI Capital Markets, Corporation Bank, Union Bank of India and Bank of Baroda sold their share. The first round of stake sale took place in January 2007, when global majors like NYSE, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund (SAIF) bought 5% each.
Ashish Rukhaiyar
MUMBAI
INDIA’S largest bank State Bank of India (SBI) has decided to sell a part of its holding in the National Stock Exchange (NSE), a move which is expected to fetch over Rs 300 crore for the bank.
SBI, which helped promote the exchange over 15 years ago along with a clutch of Indian financial institutions and banks, has an equity holding of 8.5%. The decision to reduce the holding has been prompted by rules on ownership of exchanges framed by the government. According to these rules, the equity holding of a single entity has been capped at 5%. Shareholders, who control more than 5%, will need to shed a part of their holdings to conform to these norms.
Senior bank officials said that they were hoping to rake in at least Rs 315 crore from the stake sale, which implies a valuation of close to $4 billion for the exchange. The bank has appointed its broking subsidiary SBICAP Securities to scout for potential buyers for shares it is putting on the block.
An official, who is privy to the development, said that SBI’s reserve price of Rs 315 crore is benchmarked to an earlier transaction in which the Life Insurance Corporation (LIC) had sold a part of its NSE stake at Rs 3,501 per share in March 2008. Considering that SBI is looking at selling nine lakh NSE shares, the reserve price has been pegged at Rs 315 crore. Meanwhile, in recent months, SBI’s merchant banking wing SBI Capital Markets, too, has reduced its stake in NSE from 5.6% to 4.3%.
The stake sale comes at a time when banks are struggling to boost their profits. Most banks will have to provide for their huge depreciation on the treasury portfolio due to rising yields in government bonds and a slump in the equity market. Analyst say that the sale of NSE shares will help them offset a part of provisions on treasury books.
“If the bank does not receive bids at attractive price, we may be forced to postpone plans to sell the stake right now. As such, the Securities and Exchange Board of India (Sebi) has not set any deadline to lower the stake,” said senior bank officials. Further, SBI will be able to offload its shares in NSE only to domestic institutions as the foreign holding in the exchange has already touched the maximum permissible limit of 26%.
People familiar with the development say that the bank is also open to divesting small chunk of shares to different entities. This, in effect, would lead to another round of sale where various entities would end up with marginal stake in the stock exchange.
Rules governing the ownership of stock exchanges stipulate that any single entity buying more than 1% in any of the stock exchanges, would have to obtain a “fit and proper” certificate from Sebi.
In March 2007, Morgan Stanley (3%), Citigroup (2%) and Actis (1%) collectively bought 6% stake in NSE, when various stakeholders like IDBI, SBI, SBI Capital Markets, Corporation Bank, Union Bank of India and Bank of Baroda sold their share. The first round of stake sale took place in January 2007, when global majors like NYSE, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund (SAIF) bought 5% each.
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