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BSE confident of resolving payment crisis

The stockmarket is confident that the payment crisis gripping the Bombay Stock Exchange will be over soon since the exchange plans to use money from the Trade Guarantee Fund to bail out the defaulters.

The TGF is a corpus set up 18 months ago by then BSE president M G Damani to handle such a crisis. Under the TGF scheme, each broker has to pay a minimum of Rs 1 million to insure against default of payment.

BSE sources said the proposed decision to use the TGF will help some brokers operating Harshad Mehta's favourite scrips, BPL, Videocon International, Pentafour and Sterlite Industries.

Vinay Mashruwala, a stockbroker, told Rediff On The NeT, that there have been no defaulters in the last 18 months. ''I think for the first time this money can be used to save defaulters. By tomorrow, the payment crisis should be over." BSE executive director R C Mathur, he reveals, had promised a quick resolution of the problem.

Brokers said there was Rs 3.15 billion in the TGF while the current shortfall amounted to Rs 800 million.

BSE sources maintain that the exchange is taking these steps to protect brokers who are allegedly hand-in-glove with Mehta.

The payment crisis erupted when brokers who had bought the shares could not mop up sufficient funds to take delivery. There were more tremors in the weak market following rumours that Mehta was facing a financial crisis. As a result of which many of Mehta's recommended scrips sank low.

"Scrips like BPL and Videocon International have stagnated at a price of Rs 229 and Rs 83 respectively. Today, there are no buyers for them, only sellers, after the news spread that the Big Bull is facing financial difficulties," said one broker.

"These scrips were quoting at a price at which not even the best of blue chip companies were trading at. So a fall was imminent," says Ajit Ambani, managing director, Share Deal Financial Consultant Private Limited. Neither Mehta nor BSE president J C Parekh were available for comment.

Brokers said the BSE earns at least 75 paise on every 100,000 rupees traded at the exchange.

On an average, transactions worth Rs 10 billion takes place on the BSE, putting the exchange's earnings per day at Rs 75 million.

Dinesh Shah, another broker, says, "Though I am confident that the payment crisis will be over, I will reserve my comment till tomorrow, when the brokers release their cheques."

Meanwhile, the BSE was flooded with rumours that a group of brokers had moved the courts and obtained a stay on the short sales ban imposed by the Securities and Exchange Board of India on June 16.

Leading brokers said the rumours started at the Calcutta stock exchange and flared like wildfire at the Delhi and Bombay stock exchanges.

This forced the BSE authorities to flash a clarification on trading screens, urging brokers not to believe the rumours.

BSE president Jaswantlal Parekh said nobody had moved the courts and brokers should not be taken for a ride. SEBI also confirmed that it had not received any notice in this regard from any court so far.

Additional reportage: UNI