Top sources at Sebi have said that the show cause notices were issued to members of the BSE and NSE after the performances of these exchanges were reviewed. "It was found that even though the systemic errors in both BSE and NSE had been removed in the last six months, but on the surveillance side, all exchanges had problems which had led to price rigging," said the Sebi source. "On the BSE, the `all or none' segment was misused, while on the NSE the `minimum lot segment' was misused. On the BSE, the Kapli system was misused when certain brokers had exceeded the gross exposure limit on the BSE and no action was taken against them, or a small fine was levied, which amounted to either a failure on the judgemental part or the surveillance mechanism", said theSebi source. "On the NSE, the brokers sometimes failed to give the margin money even after delaying 5-6 times, and they were still allowed to trade.

This has been questioned on the NSE", said the Sebi source. According to the source, the question here is whether the members or exchanges acted irresponsibly or it was judgemental error on their part. Members of the BSE and NSE, who were issued show-cause notices by the Sebi on February 10, on price rigging in the scrips of BPL, Videocon International and Sterlite Inudstries, are taking advice from their legal departments and are preparing replies for the same.

"We have received a show-cause notice from Sebi and we are at present working on the reply," said the managing director of National Stock Exchange (NSE), RH Patil. Both BSE president JC Parekh as well as the former vice president Rajendra Banthia were out of Mumbai and could not be contacted. Ditto RC Mathur, BSE executive director. BSE members are also preparing their line of reply and are in touchwith the legal department.

Sebi had, on February 10, issued show cause notices on Parekh, Banthia and Mathur, as well as the NSE, demading why action should not be taken against them for their inability to detect price manipulations in the BPL, Videocon International and Sterlite Industries scrips in May last year. The notices point to specific lapses in detecting the price and volume abnormalities in these three scrips. These notices mark the second phase of three-pronged investigation into the price manipulation case. The first had seen the debarring of 18 stock broking firms from trading.