Sebi Warns It May Supersede ASE Board For Illegal Badla

Mumbai, September 26: | Updated: Sep 27 2002, 05:30am hrs
In its bid to clean up stock markets across the country, capital markets regulator Securities and Exchange Board of India (Sebi) has issued a show cause notice to the Ahmedabad Stock Exchange (ASE). The notice talks about superseding the governing board of the exchange for its failure to curb illegal vyaj badla and carryforward transactions carried out by ASE member-brokers right inside the exchange premises.

Quickly reacting, ASE has convened an emergency governing board meeting on Friday evening to discuss the Sebi notice and chalk out further plans.

When contacted, Sebi chairman GN Bajpai confirmed the move and said, The ASE governing board has been served a show-cause notice and an explanation has been sought from it.

The ASE governing board has the maximum strength of 15 members, but currently two posts are vacant as the Registrar of Companies (RoC) representative has retired, while Sebi withdrew its nominee. PR Ramesh was Sebis nominee on the board, but thereafter the regulator withdrew its nominees from all stock exchange boards. Out of the current strength of 13 members, five are public directors and seven are elected broker-directors.

ASE executive director Anjani Sinha also confirmed the development to FE and said: Yes, we have received the show-cause served by Sebi to ASE and an emergency board meeting has been convened tomorrow to discuss this and the future course of action.

The exchange has already filed a complaint with the local Ellis Bridge Police station against the erring members as a precautionary measure to curb such practices.

Mr Sinha further said: To ascertain which members are carrying out such transactions, we have already launched an internal enquiry through the surveillance department of the exchange where we are verifying the trade data of at least 10 members every day, which can pinpoint to us such anomalies. Mr Sinha said ASE had been carrying out this exercise over the past 10 to 15 days and was yet to receive a final report from its surveillance department.

According to market sources, the illegal activity of vyaj badla and carryforward was rampant at ASE and was going on right under the nose of exchange officials. The corrupt vyaj badla trade and illegal carry forward transactions were being carried out in the premises of ASE itself, sources pointed out.

Even the Sebi inspection report on ASE, the result of a recent inspection by the regulator, mentions such activities. Stunned by the revelations in the report, Sebi decided to conduct a further on-the-spot inspection and sent one of its officials to verify the facts. The official also found out that 10 to 15 brokers and their employees were indulging in such business in an open outcry manner.

This action on ASE, coupled with the supercession of the Uttar Pradesh Stock Exchange (UPSE) board in July and the arrests of six brokers of the Calcutta Stock Exchange (CSE) on Wednesday, clearly indicates Sebis firm intention to clean up the stockmarkets across the country as quickly as possible.

Sebi superseded UPSE last July under section 11 of the Securities Contract Regulation Act. Sebi also appointed retired IPS official MN Sabharwal as the administrator of the exchange to exercise and perform all the powers and duties of UPSE board as the confidence of investors and the impartial working of the exchange were impaired.

It is reliably learnt that in the arrest of some of the CSE broker-members on Wednesday by local police, the market regulator also played a key role.