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CSE notice to 3 brokers; building not to be mortgaged

Rifat Jawaid in Calcutta

The Calcutta Stock Exchange has issued show-cause notices to the ten defaulting stock broking firms owned by Dinesh Kumar Singhania, Ashok Poddar and Harish Chandra Biyani on Tuesday asking them to explain why cheques for over Rs 300 million towards margin payment were dishonoured.

The brokers have been given 48 hours within which to file their reply with the stock exchange failing which strict action would be initiated against the brokers.

This was informed by CSE president Kamal Parekh at a press conference after an emergency meeting of brokers.

Parekh also said that there was no question of the CSE building being mortgaged as was reported in a section of the press. He said that stock exchange had not planned to mortgage the building if other avenues for resource mobilisation were not adequate.

He said that the CSE has been in constant touch with the Securities and Exchange Board of India (Sebi) over the issue and been apprising the markets regulator of the goings-on.

The CSE president also said that the functioning of the surveillance network too would be looked into to see if there had been some leakage of information.

Parekh expressed the confidence that there would be no payment crisis on Thursday and that the settlement would be smooth. He, however, declined to say what could be the extent of default this time. He said that the bourse can invoke the brokers' bank guarantee without actually naming them as defaulters.

Parekh said that some terminals in the brokers' offices have been deactivated and they have been asked to do the necessary transactions from the terminals in the bourse's surveillance office. He clarified that this does not mean that the brokers had been suspended from trading.

The CSE has been grappling with a serious payment crisis and defaults by some member-brokers, triggering a sharp drop in Indian shares over the past 10 days.

Brokers said they expected Parekh to formally name defaulters and announce measures the exchange was taking to ensure smooth settlement of trades.

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.

Earlier, the bourse had 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.

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.

By liquidating their long positions, most of these brokers booked heavy losses, resulting in further payment obligations this week.

Earlier, CSE President Kamal Parekh had admitted that a payment crisis had taken place for two consecutive settlements, 148 and 149, for which the exchange authorities had to liquidate the Trade Guarantee Fund (TGF) partially.

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