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Sebi pulls up CSE for 'bad' risk management

Castigating the Calcutta Stock Exchange for failing to check violation of exposure controls and other risk management measures that led to large built up positions by brokers and the payment crisis in the bourse, market regulator Sebi says correct implementation of its guidelines would have lessened the problem.

''It can be seen that had the exposure controls been implemented properly, excessive built up positions could have been avoided and from the above it can be inferred that CSE has been irresponsible in monitoring and implementation of risk management measures'', it says.

The Sebi Preliminary Investigation report on the recent stock scam says the CSE did not even call for advance pay-ins or ad hoc margins when some members built large positions in select scrips.

''Margin collection and pay-ins are still being done by accepting cheques instead of through direct debit of broker bank accounts'', it says.

Citing an example, it says a cheque of Rs 71 million given by a member who subsequently defaulted was presented by the exchange to the bank for clearance on March 5, 2001.

This, it says, was returned by the bank on March 10,2001 and in the intervening period the member was allowed to trade and increase his exposures.

Citing another case, the Sebi report says though a member, D K Singhania, had taken a delivery position on March 1, 2000, (the last day for settlement 148), this position was not counted in the exposure of the member for applying the Gross Exposure Limit.

As a result the member was able to further increase his buy position by Rs 170 million on March 2, 2001, and ultimately defaulted by an amount of Rs 60 million.

Sebi says earlier also, in spite of specific communication from it in August 2000, and constant reminders and regular follow up with the CSE, the exchange did not properly look into the allegations of unauthorised carry forward of trades.

"This is also a serious lapse on the part of the exchange".

The report says Sebi's infrastructure and staff strength in the areas of market surveillance, investigation and also in the area of inspection of the exchange and intermediaries needs to be enhanced adequately.

"This has assumed urgency in view of the recent experiences which bring out that till Self Regulatory Organisations become effective regulators, Sebi will have to play a continuous proactive role", it says.

The market regulator says for expeditious completion of investigations its staff strength needs to be urgently increased.

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