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BSE chugs along without brokers at helm

Rosemary Arackaparambil in Bombay

For the first time in the 125-year history of the Bombay Stock Exchange (BSE), its brokers are not involved in the management of India's influential bourse.

Seen as a harbinger to introduce professional management at one of Asia's oldest exchange, the Securities and Exchange Board of India (Sebi) late on Monday suspended all broker-members from acting as directors on the governing board of the BSE.

Sebi's stern ruling followed a week of drama at the stock markets as allegations swirl that the broker-directors had misused privileged information for insider trading.

The scandal drowned a widely acclaimed market-friendly federal budget unveiled on February 28, shattered investor confidence and triggered a stocks slump.

After a brief two-day rally that saw it gain about five percent post-budget, the benchmark Bombay exchange index has lost 19.54 per cent since March 1 to Tuesday's low of 3,436.75.

Unexpected move

The reaction to Sebi's ruling was mixed.

"We want the bad blood out of the market," said Shekhar Sathe, chief executive officer of Kotak Mahindra Asset Management Company.

"Sebi is moving in the right direction. By removing brokers from officials' positions in exchanges, you remove any structural scope that you have for sharing of information that makes the market unsafe," he said.

But brokers said the move, which came under tremendous political clamouring for an explanation for the stock market crisis, was totally unexpected.

"The government feels that the market should respond positively because the budget was so good, but the market has its own compulsions. Bulls were in a tight position and global markets have been weak," one broker said.

The controversy had earlier claimed the job of Anand Rathi, a leading broker, who resigned last Thursday as BSE president after media reports that he had sought details of brokers' positions on the first day of the post-budget market fall.

Rathi denies wrongdoing

The seven broker-directors suspended by SEBI included both Rathi and Deena A Mehta, the vice president of the board who was appointed to serve as interim board president after Rathi resigned.

An executive director runs the exchange on a daily basis.

Sebi debarred the broker-directors without giving any reason other than saying that it is "in the interest of investors and the orderly development of the securities market".

It added the suspension would remain in force until further orders were made.

Finance Minister Yashwant Sinha told Parliament on Tuesday he proposed to corporatise stock markets so that ownership, management and trading membership would be segregated from each other.

All the 23 exchanges in India, except the government-sponsored National Stock Exchange, also based in Bombay, are controlled by broker-directors.

Sombre brokers

The mood is sombre at the BSE, dubbed the "brokers club" exchange that prides itself as matching up to the standards of the rival professionally-run National Stock Exchange.

"There has never been such a bad day in the history of the exchange," said veteran broker Sanat Dalal.

"There are posters all over the exchange of how the BSE is a technically savvy, investor-friendly, premier exchange of India. Everything has been tarnished in a single day by an order of Sebi," he said.

The latest scandal comes two years after Sebi sacked another BSE president for lapses in administration linked to an investigation into price manipulation in some shares, accusing him of influencing decisions to benefit select brokers.

Brokers sounded resigned to the move towards professional management. "Whether we like it or not, professional management is going to be imposed on us," Dalal said.

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