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CSE margin collection flaw helped brokers: Sebi report

BS Bureau

Incorrect margin collection mechanism at the Calcutta Stock Exchange allowed broking outfits owned by defaulting brokers, namely Dinesh Kumar Singhania, Harish Chandra Biyani and Ashok Poddar, to build up huge uncovered positions on Himachal Futuristic and DSQ Software and plunged the bourse into a payment crisis, the Securities and Exchange Board of India has said in its interim report on the stock market scam.

The report was submitted to the ministry of finance on Tuesday.

The market regulator has recommended taking immediate corrective action in the surveillance and risk management of the bourse and responsibility be fixed on the officials for failure. Sebi suggested that the functioning of these systems should be overhauled and strengthened by putting senior officers in the department.

Sebi said these brokers, who build up huge uncovered positions at HFCL and DSQ counters, went bankrupt after sudden fall in prices of these shares after the Union budget. The HFCL scrip went down to Rs 388.6 on March 8 from Rs 758.5 on March 1, while DSQ Software fell to Rs 250 from Rs 366.

CSE did not survive the blow as it did not have enough margin collection nor a large settlement guarantee fund to support the large turnover and concentrated positions in a few scrips like HFCL and DSQ software, the report added.

The Sebi findings gel with the observation of the Joint Parliamentary Committee, investing the stock market scam, which held mismanagement of the authorities coupled with failure of the margin collection system responsible for the payment crisis on the city bourse.

The JPC chairman Prakash Mani Tripathi, during his visit to the country's third largest exchange, made the comments at a press meeting in the city.

Sebi said the three defaulting groups had violated the specified Rs 100 million scrip-wise trading limit on several occasions around the period of payment crisis but CSE did not take any preventive action.

The report added that defaulting brokers built up positions without paying proper margins due to an incorrect interpretation of the Sebi directives of margins by the CSE authorities. Margins are paid to contain the risks involved in position building in scrips.

"The surveillance department should activate all the alerts and have proper benchmarks, closely monitor the positions, particularly the large brokers and their trading, circular trading and shifting of positions within the same group of brokers. The error in computation of margin should be corrected immediately and appropriate amount of margin should be collected from the members strictly in accordance with T+1 system, " the report added.

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