It?s almost straight out of a movie script. Arif Memon and his relatives, who own 49% of Ahmedabad-based KGN Industries, a company involved in oil derivatives trading and has a staff strength of around 20 people, shot up from nowhere to became one of India?s richest families and the company, one of the top 100 most valued even before anyone could understand what was going on.

Thanks to the alleged price rigging and rampant speculation carried out during the re-listing of the company?s shares?price bands for circuit filters are not applicable to re-listed stock?the promoters? wealth shot up from Rs 78.48 crore, when the price was Rs 72 at the beginning of trading on May 21, to touch Rs 5,990 crore (around $14.2 billion) when the price peaked at Rs 55,000 before trading was suspended, as exchange authorities sensed something was wrong.

By the third day, when the price bands had come into play, Memon and group had a collective wealth of $1.19 billion and the company?s market capitalisation had come down to Rs 10,795 crore, still impressive by any standards. ?It?s a miracle, I cannot understand it myself,? gushes Mahesh Baser, senior finance manager, KGN Industries, standing in for Memon, who is visiting Malaysia and a couple of other countries to firm up deals.

KGN (Khwaja Ghareeb Nawaz) Industries, which was called Royal Finance until 2001 when it was de-listed, was essentially an NBFC certified by RBI. The company was de-listed seven years ago and has been trying to re-list since then. Baser said, ?We surrendered our NBFC certificate and two years ago, we submitted all relevant documents to the BSE for re-listing under a new name, since we have changed our core business from financing to oil and derivatives trading.?

If you thought KGN was a flash in the pan, think again. A day after the KGN story unfolded, the little-known Rs 2 crore Sylph Technologies, which was earlier in the housing finance business and had trading in its stock suspended in 2003 owing to compliance issues, saw its stock price reach Rs 800 from its last price of 80 paise, when trade was suspended in the stock.

Rajesh Jain, a promoter and director of Sylph Technologies, is awestruck. ?I am really surprised and shocked the way markets are behaving. All of a sudden, we have become the talk of the town.? But he senses there may be something amiss, and adds: ?The regulators should quickly sort things out.?

Promoters of the company hold a 23.88% stake, while the public holding according to BSE data for the quarter ending March 2008 stood at 75.59%. While these may sound like rags-to-riches stories, the reality is that prices are bound to come down, obviously, with filters in place from day two of trading.

Meanwhile, sources say market regulator Sebi, which has so far not made any public comment on these two cases, is planning to take up the issue and is likely to seek details from the exchange. Market manipulators have taken advantage of stock exchanges not using circuit filters to re-list stocks in the Z category, which are traded on trade-to-trade (TTT) basis.

Officially, a BSE spokesperson declined to comment on the nature of action being contemplated by the bourse, but market sources confirm that a serious investigation is under way and several brokers have been questioned.

Sebi, through a circular dated March 12, 2008, had told all stock exchanges that there is no need for a price band on the first day of commencement or recommencement of trading in cases of a merger, de-merger, amalgamation or similar situations. The regulator has taken a decision to this effect following a meeting between Sebi officials and stock exchanges.

Earlier, the stock exchanges had a policy on imposition a price band on the first day of commencement or recommencement of trading on the bourses. Sebi had received several representations expressing concern about the effect of the price band on price discovery.

Beware of illiquid scrips, says BSE

The BSE issued a caution late on Friday to investors, warning them to exercise care while investing in illiquid scrips, especially in the Z category. It also highlighted the fact that not having a price band adds to the dangers. It also states that the exchange would take appropriate action, including the suspension of trading, in the scrips if companies were found to be involved or acting in collusion with any person to defraud investors.