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3 CSE brokers face criminal proceedings

Kausik Datta & Aniek Paul

The CSE has decided to initiate criminal proceedings against the defaulting stock broking firms owned by Dinesh Kumar Singhania, Ashok Poddar and Harish Chandra Biyani as bank cheques for over Rs 300 million bounced on Saturday. The fixed deposits and the bank guarantees of the brokers kept with the bourse against their base capital had already been encashed.

CSE sources said the exchange would file criminal cases against the stock broking outfits under section 131 of the Negotiable Instruments Act next week.

The bourse drew around Rs 220 million from the Settlement Guarantee fund on Saturday to meet its pay-out obligation for settlement number 149, sources said.

The defaulting brokers, still saddled with huge payment obligations, are clearly stuck with their funds completely dried up. As a result, CSE is in danger of an even bigger payment crisis in settlement number 150, to be completed on Thursday.

Top-level CSE officials admitted that the bourse did not have any more assets pledged with it from these defaulting brokers, and in case of further default by them, the exchange would again have to take recourse to its paltry SGF.

Earlier, the bourse tried to manage the pay-out problem by drawing from the margin accounts of the defaulting brokers and withholding payment against some dubious trades till the on-going Sebi investigation into the matter ended.

According to conservative estimates, these brokers, even though they abstained from fresh long positions in settlement number 150, have a combined outstanding of Rs 750 million simply by incurring losses while squaring up their positions.

CSE sources said the bourse, under the existing Sebi rules, would not be allowed to draw further from SGF on Thursday. Even if Sebi allows the bourse to draw further from SGF, CSE would have to abandon its modified carry forward system due to dearth of fund with SGF.

In settlement number 150, these brokers have been asked by the bourse to square off their outstanding long positions carried forward from past settlements.

As terminals in the brokers' offices have been suspended, they have been asked to do the necessary transactions from the terminals in bourse's surveillance office. By liquidating their long positions, most of these brokers booked heavy losses, resulting in further payment obligations this week.

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