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Sebi may direct CSE to undo trades

Aniek Paul & Kausik Datta

The Securities and Exchange Board of India (Sebi) has traced a large number of dubious trades at the Calcutta Stock Exchange (CSE) in the last four settlements, and is likely to instruct the exchange to revert the transactions.

Top-level CSE sources said: "The Sebi team is scrutinising trading details of 20 odd defaulting brokers with another 15-20 entities, in the last four settlements, 2001147-150. They have already identified certain trades as dubious, and these are likely to be reverted."

In a notice to the brokers, CSE president Kamal Parekh said: "The exchange is examining trade details of defaulting members. It has come to the exchange's notice that some members have entered into trade for their own benefits. Any gains made by such parties at the cost of the exchange will be revoked and money will be recovered from them."

The Sebi team had identified dubious trades in settlement 149, and payment of over Rs 1 billion on account of such trades was suspended by the exchange. Sources said that the team was probing details of trades in other three settlements and a large number of trades have already been identified for reversion.

There are about 15 entities who have not received payment in settlement 149 for alleged involvement in accommodative trades. Sources said the bourse suspected that these trades were engineered to accommodate troubled brokers. The stocks under Sebi scrutiny are HFCL, DSQ Software, Global Tele-systems, Satyam Computer, Zee Telefilms and Silverline Industries - the six scrips in which most of the defaulting brokers have sustained huge losses.

The key question now facing the exchange is whether money should be drawn from the settlement guarantee fund (SGF) to adjust defaults arising out of such trades. The payment liablity of these 20 odd brokers in settlement 150 is estimated to be over Rs 1.10 billion, while the corpus of the bourse's SGF stands at Rs 600 million.

In settlement 150, most of these brokers have sustained huge losses by squaring off their long outstanding positions brought forward from past settlements.

Dubious trades have also been identified on the rolling segment. The exchange has withheld payment to a leading custodian as the counter party in the trades had defaulted. The exchange suspected that the default was pre-meditated and the custodian involved had acted in concert with the defaulting broker, in the hope that the exchange would honour the defaulting broker's commitment by drawing from the SGF.

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