The National Stock Exchange (NSE) has initiated the process to declare Prime Securities a defaulter by sending a show-cause notice (SCN) to the Mumbai-based brokerage after it defaulted on margin payments. It is believed that the brokerage owes NSE nearly R100 crore.
According to persons privy to the developments, the exchange is expected to complete the process before the end of this month. As per procedures laid down by the bourse, a SCN is followed by a personal hearing after which an order is passed.
Incidentally, the exchange has already disabled the trading terminals of Prime Securities, which effectively means that the brokerage cannot do any fresh trading. The brokerage headed by N Jayakumar is widely known in the market for creating a niche in the mid- and small-cap arena.
The brokerage has been in the news for the last few days after NSE revealed that the listed firm is under the scanner for its alleged dealings with related parties and associate companies in the shares of Gitanjali Gems among other listed entities. The jewellery retailer has seen its shares lose 65% in the last one month.
?NSE is conducting an investigation into the transactions of Prime Broking Company (India) and its related entities and transactions in Gitanjali Gems and other transactions relating therewith,? stated an NSE announcement. ?Pending conclusion of investigations, as an interim measure, pay-out for today (Friday) in respect of the transactions under investigation has been withheld by the exchange,? it added. NSE, however, is not the only entity that is probing the activities of Prime. The Securities and Exchange Board of India (Sebi) is also probing whether the brokerage is linked to any activity leading to manipulation of prices in the cash and derivatives segments.
Interestingly, market players say that Prime Securities will be able to recover from the current controversy though the amount of losses could be significant. Meanwhile, an email query sent to Jayakumar remained unanswered till the time of going to press.
?Prime has gone through this at least a couple of times before; it has lost money a few times before but recouped its losses each time,? said a proprietary broker on condition of anonymity. ?However, Prime needs to realise that unlike some of the other active prop traders, it is a listed entity and the firm has some fiduciary responsibilities towards its shareholders. The impact on the exchange will be minimal as due to strict margining mechanism.
