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Sebi report blames brokers for crisis

The Securities and Exchange Board of India, in a report to the Union finance ministry, has accused short sellers of helping to trigger a crash in Indian stock markets, domestic financial dailies said on Monday.

The report, submitted on Sunday, singled out brokers Shankar Sharma, Nirmal Bang and R S Damani as short-sellers who played a role in precipitating the initial market decline, business newspapers said.

One financial daily also said Credit Suisse First Boston's Indian arm was cited for funding some short-sellers who played leading roles in triggering the initial avalanche.

When contacted by Reuters, CSFB and one of the three brokers called the news reports speculative; one broker denied engaging in short-selling in the past year to March; and a third broker declined comment.

"We have not seen the Sebi report yet and, therefore, cannot comment on what at this stage appears to be press speculation," said K R Bharat, managing director of Credit Suisse First Boston India.

The newspapers did not make it clear how they had obtained information from the report and when contacted by Reuters, Sebi and the finance ministry declined to comment on the report.

Shankar Sharma, director of brokerage First Global, also noted that neither Sebi nor the finance ministry had disclosed any details of the report.

"No one has the report except the finance minister. Whatever newspapers are saying is speculative," Sharma said.

R S Damani said that he had not been involved in any short-selling in the year to the end of March.

"We have written to the Sebi that neither my group companies nor my family members or me have short sold shares in the year to March 31, 2001," Damani said.

Nirmal Bang declined to make any immediate comment.

Another daily reported that the investigation team headed by Sebi senior executive director LK Singhvi has come to the conclusion that prima facie the crash was caused by both unwinding by bull operators and fresh positions taken by bear operators through orchestrated short selling in select scrips.

The report details Parekh's involvement with banks as well as the latter's dealings with various stock brokers, sources said. The Sebi report is to be tabled in Parliament during the on-going budget session.

Sebi chairman D R Mehta said that the report details the involvement of some FIIs in the events leading up to the market crash. "Yes, there has been involvement of FIIs. Ketan Parekh's involvement has also been dealt with extensively in the report," a Business Standard report quotes Mehta as having said.

But on the issue of Sebi's intended future course of action following its findings, Mehta said, "The report is out of our hands. Now it is up to Parliament to decide on the future course of action."

Mehta, however, confirmed that Sebi will be picking up leads from the findings to continue its investigations into instances of market manipulation. "Further, we will look into the issue (of misuse) of in-transit shares and the wider issue of corporate funding of brokers," Mehta said.

A senior official in Sebi, referring to the report, said that it was not meant to be exhaustive or to indict anyone but merely to fix responsibility on the entities concerned in the entire affair.

Sebi sleuths involved in the investigations said: "We have enough pointers on the specific direction needed now," adding that many of the brokerages in whose names the in-transit shares were held appeared to be funded by a few large corporate houses.

The details from depositories National Securities Depository Ltd and Central Depository Services Ltd will provide Sebi with some clinching evidence in this regard, sources said.

They added that the Sebi report had few surprises and merely confirms the involvement of FIs and large broking houses in the carnage at the bourses.

The report also has details on how brokers in the Calcutta Stock Exchange were caught out and the subsequent defaults - which the regulator has been inclined to lay at the doors of the banks.

Bombay Stock Exchange's Sensex has lost over 29 per cent from its March 1 intra-day peak, a day after the presentation of a market-friendly Union budget. The decline surprised analysts and investors and sparked allegations of insider trading and price rigging.

The head of the Bombay Stock Exchange Anand Rathi was forced to quit over allegations that he provided price sensitive information to brokers, who used it to cause the initial market decline by "hammering" stocks owned by the market's biggest speculator.

Rathi has denied the allegations.

According to one financial daily, the Sebi report said the market's reputed largest speculator, broker Ketan Parekh, was financed in part by banks which lent money to him in violation of established banking norms.

The Sebi report also said that corporations like Zee Telefilms, India's largest private television network, and telecom company Himachal Futuristic Communications had financed Parekh, the newspaper said. The two companies have denied the allegations.

Parekh is currently in police custody over fraud allegations made by the state-run Bank of India.

According to the daily, the Sebi probe also found evidence of links between Ramesh Gelli, former chairman and managing director of Global Trust Bank, and Parekh while investigating alleged rigging of the bank's share price ahead of its announced merger with UTI Bank.

Gelli has denied the price manipulation allegations.

The merger between Global Trust Bank and UTI Bank was called off last week.

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