Questions Seem To Have Been Raised About
Some Of The Strategic Moves Of The Exchange
Jul 03, 2008
Ashish Rukhaiyar
MUMBAI
JULY 12 could turn out to be an important day for the Bombay Stock Exchange, when its board meets in the backdrop of abrupt resignations and rumours of more exits. Already, there are talks of strategic partners demanding board seats and Sebi being unhappy with BSE’s performance, having lost ground to the National Stock Exchange (NSE).
BSE’s newly-elected chairman Jagdish Capoor has already met Sebi chairman CB Bhave on more than a couple of occasions after assuming office for the second time. Mr Bhave had earlier expressed his displeasure over the way BSE has conducted its business.
“I met Mr Bhave after assuming office and we discussed various issues,” said Mr Capoor without going into the specifics. For Singapore Stock Exchange and Deutsche Boerse asking for a board seat, Mr Capoor said: “The decision would be taken by the board at the appropriate time.” He also declined to comment on rumours related to fresh resignations.
The buzz is that BSE managing director and CEO Rajnikant Patel may quit. While Mr Patel was unavailable for comment, sources said such rumours could be linked to the fact that Mr Patel was close to Mr Shekhar Datta. Mr Datta had certain differences with some of the board members who had earlier opposed Mr Patel joining the board of the Calcutta Stock Exchange where BSE has a stake. Incidentally, Mr Datta’s resignation, sources said, may be connected to the way Sebi chief felt about BSE.
In June 10, 2008, when Mr Bhave met the BSE board, many members, including the then non-executive chairman Mr Datta and shareholder director Jamshyd Godrej, were not present. Few days later, the duo emailed their resignations to the Sebi chief.
Sources said some of the strategic initiatives of BSE had come under question. These include taking a stake in the Calcutta Stock Exchange, buying into the Ahmedabad-based commodity exchange NMCE and BSE’s technology agreement with OMX.
“The BSE-OMX deal was signed in a very hasty manner without any RFP (request for proposal) or business requirement plan,” said a person familiar with the developments. Now we have been told that OMX would take another 18 months to deliver the platform, added the source. BSE is believed to have shelled out $37.50 million for the platform. According to sections in BSE, Mr Datta’s huge travel bills had also attracted the regulator’s attention.
However, defending Mr Datta on some of the strategic investments, sources said all decisions were taken by the board and not by the chairman unilaterally. “There are sub-committees looking into such investment decisions and choice of technology. The board took its decisions after considering the recommendations of these committees,” said an insider.
BSE had bought 5% in CSE for Rs 6 crore and 26% in NMCE for around Rs 40 crore. Sections of the broking community felt that these investments made no sense since there is little trading on the CSE, while NMCE does a fraction of the business done by leading commodity exchanges like MCX and NCDEX.
The Central Warehousing Corporation, which has a stake of 26% in NMCE, is believed to be against BSE’s representation on the board of NMCE. Incidentally, CWC and BSE have not yet signed the shareholder’s agreement. Last heard, BSE was said to be reconsidering its decision related to NMCE.
Thursday, 31 July 2008
Leveraged promoters to face the margin call
Jul 02, 2008
Sugata Ghosh & Ashish Rukhaiyar
MUMBAI
AFTER retail investors and high net worth individuals (HNIs), it could now be the turn of big boys to face margin calls. Given the intensity of correction in the stock market, promoters of some of the companies may find themselves at the mercy of their financiers. These are players who have pledged their stocks to borrow from large non-banking finance companies (NBFCs).
The money raised is used to step up their shareholdings in group companies through creeping acquisition, subscribing to preference shares and participating in a rights offering to avert a stake dilution. According to market circles, some of the NBFCs have started sending feelers to these promoter-borrowers to pledge more shares following a sharp decline in the stock value. Alternatively, they have to prepay a slice of the loan.
Interestingly, the borrower club comprises small promoters as well as not-so-small ones, cutting across all sectors from manufacturing to retail to properties. In the course of a stunning bull market they played a leveraged game, not just to consolidate their ownership in group firms but to also grow their businesses. For instance, the equity they chip in for floating a new company could actually be with money borrowed from a finance company. This would make the actual debt-equity ratio of the new company much more than what looks like.
However, these borrowers get more breathing space than a regular stock market investor who may find that the brokerage has sold his pledged stocks and squared off the position due to a delay in replenishing the margin. “Here, finance companies have a long standing relationship with many promoters, and may take much longer in pulling the trigger,” said a senior official of a finance house. However, if the market continues to be as brutal as it looks, it’s a matter of time that these borrowers will feel the crunch.
The margin requirement for such borrowings is normally high. An NBFC may ask for stocks worth Rs 200 crore to Rs 300 crore, depending on how volatile the share is, for a Rs 100-crore loan. The interest charge varies between 12% and 18%. There are cases where some of these promoter-borrowers have raised funds from a string of finance companies. Often finance companies extend such loans in the garb of working capital.
In these cases, the primary collateral could be current assets of the company while the pledged stocks serve as additional collateral. Since deposit accepting finance companies have certain restrictions against loan against shares, the financing is structured in a way to make it appear as a standard working capital loan. Some market participants, in light of the prevailing uncertainty, have already started towing a cautious line when it comes to funding promoters.
“We have consciously decided to go slow in funding promoters since the market conditions are bad and the business is a high risk one,” said the CEO of a brokerage arm which runs a finance house. “The market has not been kind in the recent past and having large single stock portfolio carries a huge risk. Around 4-5 months ago, we took a decision to go slow in this arena,” he said. He feels the risk rises exponentially as the promoters in most cases use the funds to further acquire their own shares.
Market players feel that the coming days will witness quite a few promoters getting margin calls as the markets have lost heavy ground. In the past one month, the benchmark Sensex has shed more than 21% or 3,454 points. More importantly, the midcap index that houses almost 280 stocks has seen nearly one-fourth or 23.94% of its value getting eroded. Promoters of many midcap companies resort to such funding from finance companies as they have few other avenues.
Sugata Ghosh & Ashish Rukhaiyar
MUMBAI
AFTER retail investors and high net worth individuals (HNIs), it could now be the turn of big boys to face margin calls. Given the intensity of correction in the stock market, promoters of some of the companies may find themselves at the mercy of their financiers. These are players who have pledged their stocks to borrow from large non-banking finance companies (NBFCs).
The money raised is used to step up their shareholdings in group companies through creeping acquisition, subscribing to preference shares and participating in a rights offering to avert a stake dilution. According to market circles, some of the NBFCs have started sending feelers to these promoter-borrowers to pledge more shares following a sharp decline in the stock value. Alternatively, they have to prepay a slice of the loan.
Interestingly, the borrower club comprises small promoters as well as not-so-small ones, cutting across all sectors from manufacturing to retail to properties. In the course of a stunning bull market they played a leveraged game, not just to consolidate their ownership in group firms but to also grow their businesses. For instance, the equity they chip in for floating a new company could actually be with money borrowed from a finance company. This would make the actual debt-equity ratio of the new company much more than what looks like.
However, these borrowers get more breathing space than a regular stock market investor who may find that the brokerage has sold his pledged stocks and squared off the position due to a delay in replenishing the margin. “Here, finance companies have a long standing relationship with many promoters, and may take much longer in pulling the trigger,” said a senior official of a finance house. However, if the market continues to be as brutal as it looks, it’s a matter of time that these borrowers will feel the crunch.
The margin requirement for such borrowings is normally high. An NBFC may ask for stocks worth Rs 200 crore to Rs 300 crore, depending on how volatile the share is, for a Rs 100-crore loan. The interest charge varies between 12% and 18%. There are cases where some of these promoter-borrowers have raised funds from a string of finance companies. Often finance companies extend such loans in the garb of working capital.
In these cases, the primary collateral could be current assets of the company while the pledged stocks serve as additional collateral. Since deposit accepting finance companies have certain restrictions against loan against shares, the financing is structured in a way to make it appear as a standard working capital loan. Some market participants, in light of the prevailing uncertainty, have already started towing a cautious line when it comes to funding promoters.
“We have consciously decided to go slow in funding promoters since the market conditions are bad and the business is a high risk one,” said the CEO of a brokerage arm which runs a finance house. “The market has not been kind in the recent past and having large single stock portfolio carries a huge risk. Around 4-5 months ago, we took a decision to go slow in this arena,” he said. He feels the risk rises exponentially as the promoters in most cases use the funds to further acquire their own shares.
Market players feel that the coming days will witness quite a few promoters getting margin calls as the markets have lost heavy ground. In the past one month, the benchmark Sensex has shed more than 21% or 3,454 points. More importantly, the midcap index that houses almost 280 stocks has seen nearly one-fourth or 23.94% of its value getting eroded. Promoters of many midcap companies resort to such funding from finance companies as they have few other avenues.
Arbitrageurs Smell Good Money In Ranbaxy
Even if the scrip trades above Rs 500 after the
open offer, you stand to profit, say analysts
Jun 13, 2008
Ashish Rukhaiyar
MUMBAI
THE impending open offer price of Rs 737 per Ranbaxy share does not seem to have arbitrageurs excited. This is evident from the lacklustre trend in the stock price since the deal with Daiichi was announced pre-market hours on Wednesday.
On Thursday, Ranbaxy fell 3.1% to close at Rs 543.50. But market watchers feel there could be decent — if not lavish — money to be made from the open offer after factoring in various assumptions like company fundamentals, valuations, number of shares tendered in the open offer, future prospects and post offer price of the stock.
Interestingly, many brokerages were peddling their analysis of the “money making proposition” on Thursday in their attempt to please their clientele for whom the recent past has been tough. According to one such study, even if Ranbaxy shares trade in a price upward of Rs 500 post the open offer, investors stand a chance to make a decent profit.
The explanation goes like this. Since minority investors hold a little over 65% in Ranbaxy, only one-third of the shares submitted in the open offer will be accepted, assuming all minority investors participate. An investor, who buys 100 shares from the market for Rs 543.50 and tenders them in the open offer, will receive Rs 737 per share for only 31 shares, while the remaining 69 will be returned to him. The average price for these 69 shares would come to Rs 456. For the investor to make a meaningful profit on his remaining shares, any price above Rs 480 would suffice.
CLSA, on Thursday, termed the offer “attractive from minority shareholders perspective”. “With a minimum 30.7% of shares being likely to be accepted in the open offer (Rs 737 per share) and our fair price estimate of Rs 525 per share (for residual 69.3% shares), we arrive at target price of Rs 590,” said the foreign brokerage.
However, therein also lies the catch. For, analysts who feel that there is not much on the table for investors, say there is no guarantee that price would remain above Rs 500 post-open offer. They are of the view that the stock would come under heavy selling pressure after the open offer as investors who bought with the sole aim of arbitrage gains would sell in the open market. There are many who differ as institutional investors who hold more than 40% are long-term investors and typically do not resort to selling in the open market after the open offer. This would take care of the stock price after the open offer, they add.
Valuations also suggest that investors stand a chance to profit from the sale of residual shares in the open market. Currently, the stock is trading at a PE of 33.87. Historically, Ranbaxy has been trading at higher PEs compared to its peers like Cipla and Dr Reddy’s Labs. At a price of Rs 500, the PE would come to around 31, which is only slightly higher than its 2007 average PE of 28.62.
KRIS director Arun Kejriwal said the deal is a sure way of generating “risk-free return”. “In uncertain times, when people are not confident whether the bottom has been made, Ranbaxy offers a good opportunity to park money,” says Mr Kejriwal.
However, the preferential issue would also play an important role as it would change the acceptance ratio. If the preferential issue is made before the open offer then the capital base would be enhanced, affecting the acceptance ratio.
open offer, you stand to profit, say analysts
Jun 13, 2008
Ashish Rukhaiyar
MUMBAI
THE impending open offer price of Rs 737 per Ranbaxy share does not seem to have arbitrageurs excited. This is evident from the lacklustre trend in the stock price since the deal with Daiichi was announced pre-market hours on Wednesday.
On Thursday, Ranbaxy fell 3.1% to close at Rs 543.50. But market watchers feel there could be decent — if not lavish — money to be made from the open offer after factoring in various assumptions like company fundamentals, valuations, number of shares tendered in the open offer, future prospects and post offer price of the stock.
Interestingly, many brokerages were peddling their analysis of the “money making proposition” on Thursday in their attempt to please their clientele for whom the recent past has been tough. According to one such study, even if Ranbaxy shares trade in a price upward of Rs 500 post the open offer, investors stand a chance to make a decent profit.
The explanation goes like this. Since minority investors hold a little over 65% in Ranbaxy, only one-third of the shares submitted in the open offer will be accepted, assuming all minority investors participate. An investor, who buys 100 shares from the market for Rs 543.50 and tenders them in the open offer, will receive Rs 737 per share for only 31 shares, while the remaining 69 will be returned to him. The average price for these 69 shares would come to Rs 456. For the investor to make a meaningful profit on his remaining shares, any price above Rs 480 would suffice.
CLSA, on Thursday, termed the offer “attractive from minority shareholders perspective”. “With a minimum 30.7% of shares being likely to be accepted in the open offer (Rs 737 per share) and our fair price estimate of Rs 525 per share (for residual 69.3% shares), we arrive at target price of Rs 590,” said the foreign brokerage.
However, therein also lies the catch. For, analysts who feel that there is not much on the table for investors, say there is no guarantee that price would remain above Rs 500 post-open offer. They are of the view that the stock would come under heavy selling pressure after the open offer as investors who bought with the sole aim of arbitrage gains would sell in the open market. There are many who differ as institutional investors who hold more than 40% are long-term investors and typically do not resort to selling in the open market after the open offer. This would take care of the stock price after the open offer, they add.
Valuations also suggest that investors stand a chance to profit from the sale of residual shares in the open market. Currently, the stock is trading at a PE of 33.87. Historically, Ranbaxy has been trading at higher PEs compared to its peers like Cipla and Dr Reddy’s Labs. At a price of Rs 500, the PE would come to around 31, which is only slightly higher than its 2007 average PE of 28.62.
KRIS director Arun Kejriwal said the deal is a sure way of generating “risk-free return”. “In uncertain times, when people are not confident whether the bottom has been made, Ranbaxy offers a good opportunity to park money,” says Mr Kejriwal.
However, the preferential issue would also play an important role as it would change the acceptance ratio. If the preferential issue is made before the open offer then the capital base would be enhanced, affecting the acceptance ratio.
IPO scam: Sebi may now issue consent orders to Vora family
Jun 09, 2008
Ashish Rukhaiyar
MUMBAI
THE first set of consent orders in the IPO scam is just the tip of the iceberg. According to sources, there are likely to be 75-80 consent orders with various entities. And given the fact that the market regulator’s investigation is almost through, there is a high probability that the remaining orders would be served within quick time.
Persons familiar with the development add that the next set of consent orders is also expected to be with entities alleged to be the financiers in the whole scam. Just last week, the Securities and Exchange Board of India (Sebi) signed the first set of consent orders with members of the Dadia family, who were identified as errant financiers in the IPO scam. The regulator also managed to collect Rs 71.75 lakh as penalty.
“If all the alleged entities agree for consent orders then the number will be in the range of 75-80,” said a person familiar with the development. “Just like the members of the Dadia family, there are some other financiers, too, in the whole deal that would be targeted through the next set of consent orders,” he added.
It is believed that the next set of consent orders is expected to be against members of the Vora family and the entities that they control. Hasmukhlal Vora, Dhiren Vora and Sonal Vora have been identified as financiers to Roopalben Panchal, the prime accused and against whom even a CBI enquiry is pending.
Interestingly, sources add that the market regulator has been finding it difficult to find the entities that the Voras own. “There are a few entities that we believe are owned by members of the Vora family, but there are still some grey areas,” said sources.
Entities like Zenet Software, Seer Finlease, Excel Multitech and Tauras Infosys are believed to be loosely owned by different members of the Vora family. Even Sugandh Investments, which cornered the retail portion of NTPC’s IPO, is alleged to be linked to the Voras. Zenet Software was one of the financiers to Sugandh.
It is also said that the market regulator would be more at ease with consent orders against entities that are not a part of the investigations carried out by other agencies like CBI. The government agency has already filed chargesheets against various entities, including Roopalben Panchal, Dharmesh Mehta, Purshottam Budhwani and Sugandh Investments.
The consent orders would also help the regulator in compensating thousands of retail investors as the entities would have to disgorge the ill-gotten gains apart from the settlement charges. Members of the Dadia family remitted a total sum of Rs 71.75 lakh that included Rs 59.75 lakh as disgorgement and Rs 12 lakh as settlement charges.
Ashish Rukhaiyar
MUMBAI
THE first set of consent orders in the IPO scam is just the tip of the iceberg. According to sources, there are likely to be 75-80 consent orders with various entities. And given the fact that the market regulator’s investigation is almost through, there is a high probability that the remaining orders would be served within quick time.
Persons familiar with the development add that the next set of consent orders is also expected to be with entities alleged to be the financiers in the whole scam. Just last week, the Securities and Exchange Board of India (Sebi) signed the first set of consent orders with members of the Dadia family, who were identified as errant financiers in the IPO scam. The regulator also managed to collect Rs 71.75 lakh as penalty.
“If all the alleged entities agree for consent orders then the number will be in the range of 75-80,” said a person familiar with the development. “Just like the members of the Dadia family, there are some other financiers, too, in the whole deal that would be targeted through the next set of consent orders,” he added.
It is believed that the next set of consent orders is expected to be against members of the Vora family and the entities that they control. Hasmukhlal Vora, Dhiren Vora and Sonal Vora have been identified as financiers to Roopalben Panchal, the prime accused and against whom even a CBI enquiry is pending.
Interestingly, sources add that the market regulator has been finding it difficult to find the entities that the Voras own. “There are a few entities that we believe are owned by members of the Vora family, but there are still some grey areas,” said sources.
Entities like Zenet Software, Seer Finlease, Excel Multitech and Tauras Infosys are believed to be loosely owned by different members of the Vora family. Even Sugandh Investments, which cornered the retail portion of NTPC’s IPO, is alleged to be linked to the Voras. Zenet Software was one of the financiers to Sugandh.
It is also said that the market regulator would be more at ease with consent orders against entities that are not a part of the investigations carried out by other agencies like CBI. The government agency has already filed chargesheets against various entities, including Roopalben Panchal, Dharmesh Mehta, Purshottam Budhwani and Sugandh Investments.
The consent orders would also help the regulator in compensating thousands of retail investors as the entities would have to disgorge the ill-gotten gains apart from the settlement charges. Members of the Dadia family remitted a total sum of Rs 71.75 lakh that included Rs 59.75 lakh as disgorgement and Rs 12 lakh as settlement charges.
Broking cos resort to staggered bonus payout
Jun 04, 2008
Ashish Rukhaiyar
MUMBAI
IT IS that time of the year again when employees at domestic brokerages look forward to receiving their annual bonus. Yet this time round, there were some not so pleasant surprises. For, those lucky to be eligible for a decent bonus were shocked to see their payouts going down by almost 50%. Reason — staggered bonus payout.
Many large-sized brokerages have taken to giving out bonus in tranches in their attempt to address two major issues facing the industry — higher attrition and business slowdown. More importantly, many brokerages are eager to move to the system of staggered bonus payouts in the future.
According to industry sources, some of the biggest domestic brokerages have given bonuses in two tranches in a bid to hold back employees. While most have received one half of their bonus, they have been asked to wait for a couple of months for the remaining half. In some instances, the wait is said to be almost 5-6 months long. Typically, domestic brokerages face a huge exodus in the months of April and May as they dole out their bonuses in March. Dealers and analysts tend to move to greener pastures after collecting their bonuses.
This time round the situation has aggravated on account of their business volume having witnessed a slowdown for the first time in more than four years. The bull run, which started in mid-2005, continued unabated till the start of the current calendar year. During those years, brokerages never faced any such issue as they were aflush with capital. The recent results of most of the listed entities clearly show that their brokerage income has gone down substantially.
In an interesting incident, a recently-listed brokerage with a large clientele is believed to have given out the full bonus but with a caveat. The bonus has been “divided into two notional parts” with one part being called “loan to the employee”. Any employee who quits within a couple of months after receiving the bonus will have to pay back the loan part of the bonus.
Ashish Rukhaiyar
MUMBAI
IT IS that time of the year again when employees at domestic brokerages look forward to receiving their annual bonus. Yet this time round, there were some not so pleasant surprises. For, those lucky to be eligible for a decent bonus were shocked to see their payouts going down by almost 50%. Reason — staggered bonus payout.
Many large-sized brokerages have taken to giving out bonus in tranches in their attempt to address two major issues facing the industry — higher attrition and business slowdown. More importantly, many brokerages are eager to move to the system of staggered bonus payouts in the future.
According to industry sources, some of the biggest domestic brokerages have given bonuses in two tranches in a bid to hold back employees. While most have received one half of their bonus, they have been asked to wait for a couple of months for the remaining half. In some instances, the wait is said to be almost 5-6 months long. Typically, domestic brokerages face a huge exodus in the months of April and May as they dole out their bonuses in March. Dealers and analysts tend to move to greener pastures after collecting their bonuses.
This time round the situation has aggravated on account of their business volume having witnessed a slowdown for the first time in more than four years. The bull run, which started in mid-2005, continued unabated till the start of the current calendar year. During those years, brokerages never faced any such issue as they were aflush with capital. The recent results of most of the listed entities clearly show that their brokerage income has gone down substantially.
In an interesting incident, a recently-listed brokerage with a large clientele is believed to have given out the full bonus but with a caveat. The bonus has been “divided into two notional parts” with one part being called “loan to the employee”. Any employee who quits within a couple of months after receiving the bonus will have to pay back the loan part of the bonus.
Saturday, 31 May 2008
No consensus on Rel Power buy
May 29, 2008
Ashish Rukhaiyar
MUMBAI
IS this the right time to buy Reliance Power shares? Or should one wait for it to go ex-bonus? Retail investors seem to be in a fix as there have been conflicting views in the market over the “right” value of the shares. Reliance Power shares are currently trading at Rs 411.20 and has been under pressure over the last one week, shedding 7%.
Dealers tracking the counter say that retail investors have been selling shares of the Anil Ambani-controlled power utility, and hoping to buy it cheaper after it goes ex-bonus. Investors do not see any reason for holding onto the shares until June 2 (record date) to be eligible for the bonus shares that will be doled out to public shareholders in the ratio of 3:5 (three for every five held), they say. Because the difference between the total cost of five shares at the prevailing market price and that of eight shares at the likely ex-bonus price is insignificant.
Market experts who advise against holding Reliance Power shares have their maths ready. According to back-of-the-envelope calculations, the stock should be available at less than Rs 260 (Rs 257 to be precise) after going ex-bonus. This, they say, is after factoring in the 22.80 crore existing non-promoter shares and the 13.68 crore new shares that will make its way to the market.
Assuming that the shares list at Rs 260, an investor will have to shell out around Rs 2,080 for eight shares. At the current market price, five Reliance Power shares will cost him Rs 2,056 — these five shares will entitle him for three more shares. Not much of a difference. One can square off his position, buy other stocks and then buy back RPower after it goes ex-bonus.
In other words, there is no need to lock up capital in one stock. However, there are many who do not subscribe to this theory. Their biggest argument is that stock markets, and for that matter stock prices, rarely behave in the manner in which they are expected to.
Theory is miles away from practical, they add. They feel that the stock will zoom after going ex-bonus; their gut feeling is that the stock could rise to around Rs 280 ex-bonus.
Ashish Rukhaiyar
MUMBAI
IS this the right time to buy Reliance Power shares? Or should one wait for it to go ex-bonus? Retail investors seem to be in a fix as there have been conflicting views in the market over the “right” value of the shares. Reliance Power shares are currently trading at Rs 411.20 and has been under pressure over the last one week, shedding 7%.
Dealers tracking the counter say that retail investors have been selling shares of the Anil Ambani-controlled power utility, and hoping to buy it cheaper after it goes ex-bonus. Investors do not see any reason for holding onto the shares until June 2 (record date) to be eligible for the bonus shares that will be doled out to public shareholders in the ratio of 3:5 (three for every five held), they say. Because the difference between the total cost of five shares at the prevailing market price and that of eight shares at the likely ex-bonus price is insignificant.
Market experts who advise against holding Reliance Power shares have their maths ready. According to back-of-the-envelope calculations, the stock should be available at less than Rs 260 (Rs 257 to be precise) after going ex-bonus. This, they say, is after factoring in the 22.80 crore existing non-promoter shares and the 13.68 crore new shares that will make its way to the market.
Assuming that the shares list at Rs 260, an investor will have to shell out around Rs 2,080 for eight shares. At the current market price, five Reliance Power shares will cost him Rs 2,056 — these five shares will entitle him for three more shares. Not much of a difference. One can square off his position, buy other stocks and then buy back RPower after it goes ex-bonus.
In other words, there is no need to lock up capital in one stock. However, there are many who do not subscribe to this theory. Their biggest argument is that stock markets, and for that matter stock prices, rarely behave in the manner in which they are expected to.
Theory is miles away from practical, they add. They feel that the stock will zoom after going ex-bonus; their gut feeling is that the stock could rise to around Rs 280 ex-bonus.
Hall of shame: Shooting stars put Sebi, exchanges to test
Price Fixers Play New Games To Escape
The Glare Of Surveillance Agencies
May 24, 2008
Santosh Nair & Ashish Rukhaiyar
MUMBAI
IT APPEARS to be a busy season for stock manipulators. On Wednesday, KGN Industries soared to an unbelievable price of Rs 55,000 on relisting after nearly seven years. A day later, another obscure firm — Sylph Technologies — which last traded at Re 0.80 per share at the time of its delisting five years ago, climbed to an intra-day high of Rs 800 on relisting, before settling at Rs 200. The common thread running across these cases being, both these scrips figure in the Bombay Stock Exchange’s Z group — the exchange’s hall of shame for firms violating listing norms. Both these companies have no fundamentals worth mentioning.
While these scrips made headlines because of the bizarre price levels they touched on the relisting day, brokers claim that price fixing is a routine phenomenon in quite a few Z and T group stocks, where only delivery-based transactions are allowed due to a lack of liquidity.
“In many stocks, the shareholding pattern disclosed to the stock exchange is not what it appears to be,” said a broker. “Shares held under the heading of ‘corporate bodies’ are usually indirectly controlled by promoters, either through their own holding companies or those owned by close relatives,” he added. As a result, actual public holdings are very low, making the stock an easy target for price rigging.
Brokers claim there are quite a few listed companies that have no core activity other than providing fictitious profits and losses to investors, looking to balance their account books. And, while it is hard to prove, there are also whispers of corruption. As regulators step up vigilance, manipulators, too, have devised newer ways to dodge the law.
Circular trading is relatively easier for surveillance officials to detect. So, scamsters have given up on this route. Instead, they use a chain of clients who are often registered with different brokers. The difficult part for investigators then is to prove that the clients are known to each other.
“The exchange has a wealth of information, but is somehow not allowed to use it in the right way,” says an industry source, adding that “exchanges have become a just channel through which the regulator gets all the trading data.” Every week at the surveillance meet, Sebi officials ask exchange authorities to get trading data on stocks that are under their (Sebi) scanner. Exchanges provide the data, and their job is done, he added. There is an urgent need to allow exchanges to come out with orders on their own.
Interestingly, Sebi officials, on conditions of anonymity, accept that most of their time goes into handling petty complaints against brokers and they would be happy to let exchanges handle them. There are some who are afraid that exchanges might be biased, as brokers are also members of the exchange.
Sebi to tighten surveillance systems
THERE are many who feel that the exchanges are themselves to be blamed when petty issues make their way to the regulator’s office. “The exchanges have a tendency to escalate every issue to Sebi so that they are not pulled up in the future,” said an official.
It is believed that the regulator is working on a system where most complaints against brokers are resolved at the exchange level and the guilty is punished. “We have our integrated market surveillance system (IMSS) that we intend to use to uncover bigger wrong doings. The data and systems that exchanges have are enough to catch most of the small fish,” says a source.
A stock exchange is the first level regulator, and ideally should be able to handle complaints against brokermembers on its own. However, that is not the case in India as the regulator is believed to be against the idea of delegating or sharing power with other institutions.
It is also said that operators are able to gather courage to rig prices because stock exchanges in India do not have a rich history of bringing such entities to book, say sources. That job is handled by the market regulator, who has other issues also to tackle. In effect, penalising nuisance creators is a long process.
BSE is probing into Wednesday’s transactions in the KGN Industries stock. But key players behind the price swings appear to have succeeded in their plan, at least for the time being. On Friday, trading in the KGN stock were frozen at the lower end of the 5% intra-day circuit filter at Rs 4,863.27.
The Glare Of Surveillance Agencies
May 24, 2008
Santosh Nair & Ashish Rukhaiyar
MUMBAI
IT APPEARS to be a busy season for stock manipulators. On Wednesday, KGN Industries soared to an unbelievable price of Rs 55,000 on relisting after nearly seven years. A day later, another obscure firm — Sylph Technologies — which last traded at Re 0.80 per share at the time of its delisting five years ago, climbed to an intra-day high of Rs 800 on relisting, before settling at Rs 200. The common thread running across these cases being, both these scrips figure in the Bombay Stock Exchange’s Z group — the exchange’s hall of shame for firms violating listing norms. Both these companies have no fundamentals worth mentioning.
While these scrips made headlines because of the bizarre price levels they touched on the relisting day, brokers claim that price fixing is a routine phenomenon in quite a few Z and T group stocks, where only delivery-based transactions are allowed due to a lack of liquidity.
“In many stocks, the shareholding pattern disclosed to the stock exchange is not what it appears to be,” said a broker. “Shares held under the heading of ‘corporate bodies’ are usually indirectly controlled by promoters, either through their own holding companies or those owned by close relatives,” he added. As a result, actual public holdings are very low, making the stock an easy target for price rigging.
Brokers claim there are quite a few listed companies that have no core activity other than providing fictitious profits and losses to investors, looking to balance their account books. And, while it is hard to prove, there are also whispers of corruption. As regulators step up vigilance, manipulators, too, have devised newer ways to dodge the law.
Circular trading is relatively easier for surveillance officials to detect. So, scamsters have given up on this route. Instead, they use a chain of clients who are often registered with different brokers. The difficult part for investigators then is to prove that the clients are known to each other.
“The exchange has a wealth of information, but is somehow not allowed to use it in the right way,” says an industry source, adding that “exchanges have become a just channel through which the regulator gets all the trading data.” Every week at the surveillance meet, Sebi officials ask exchange authorities to get trading data on stocks that are under their (Sebi) scanner. Exchanges provide the data, and their job is done, he added. There is an urgent need to allow exchanges to come out with orders on their own.
Interestingly, Sebi officials, on conditions of anonymity, accept that most of their time goes into handling petty complaints against brokers and they would be happy to let exchanges handle them. There are some who are afraid that exchanges might be biased, as brokers are also members of the exchange.
Sebi to tighten surveillance systems
THERE are many who feel that the exchanges are themselves to be blamed when petty issues make their way to the regulator’s office. “The exchanges have a tendency to escalate every issue to Sebi so that they are not pulled up in the future,” said an official.
It is believed that the regulator is working on a system where most complaints against brokers are resolved at the exchange level and the guilty is punished. “We have our integrated market surveillance system (IMSS) that we intend to use to uncover bigger wrong doings. The data and systems that exchanges have are enough to catch most of the small fish,” says a source.
A stock exchange is the first level regulator, and ideally should be able to handle complaints against brokermembers on its own. However, that is not the case in India as the regulator is believed to be against the idea of delegating or sharing power with other institutions.
It is also said that operators are able to gather courage to rig prices because stock exchanges in India do not have a rich history of bringing such entities to book, say sources. That job is handled by the market regulator, who has other issues also to tackle. In effect, penalising nuisance creators is a long process.
BSE is probing into Wednesday’s transactions in the KGN Industries stock. But key players behind the price swings appear to have succeeded in their plan, at least for the time being. On Friday, trading in the KGN stock were frozen at the lower end of the 5% intra-day circuit filter at Rs 4,863.27.
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