The decision by the Securities and Exchange Board of India (Sebi) to first clear 31 stocks for derivatives trading, and then put the decision on hold for six of them the next day, is shocking. But for those who have been following the manner in which the stock market regulator operates on secondary market regulation, it is, perhaps, not much of a surprise. On January 9, Sebi cleared a list of 31 stocks for derivatives trading on National Stock Exchange and The Stock Exchange, Mumbai (BSE). The list included names like Aftek Infosys, Global Tele, HFCL, Zee Telefilms, SSI and Silverline. The very next day, the two exchanges announced that derivatives trade in these stocks had been put on hold by Sebi to a future date, while the others could commence from January 31, subject to compliance with the requirements. Reason? These stocks find mention in chapter 7 of the Joint Parliamentary Committee (JPC) report on the stock market scam of 2001.
Now consider how these stocks moved the day after Sebi cleared them for derivatives trading. Aftek Infosys hit a high of Rs 284.90 on BSE the next day, before closing at Rs 268 (Rs 276.2 was the previous day?s close), Global Tele touched Rs 99.95 before settling at Rs 92.55 (Rs 93.05), HFCL hit a high of Rs 41.05 before closing at Rs 37.40 (Rs 38.05), Zee?s high was Rs 105.25 and it closed at Rs 99.25. SSI touched a high of Rs 101.25 before closing at Rs 97, while Silverline, which was to be included in only NSE?s derivatives list, touched Rs 18.90 on NSE before closing at Rs 17.20.
All these stocks saw brisk trading on that day, as operators took positions in the wake of the Sebi decision to clear derivatives trading in them. However, as I write this on Monday, January 13, the first trading day after Sebi reversed its decision on these six stocks, the situation is quite different. All these stocks lost ground on Monday?s trading, as it became clear that the regulator had goofed up and had asked the bourses to drop these stocks from the list of 31. By the end of Monday?s trades, Aftek lost 2 per cent, Global Tele 3 per cent, HFCL 2.7 per cent, Zee 1 per cent, SSI 3.1 per cent and Silverline 6.1 per cent (on NSE). Brokers cried foul and said several of their clients had taken positions in these stocks on Friday, but had to unwind them after the Sebi reversal of stance. Who should these people now hold responsible for their losses?
This brings to the forefront the question of how, as markets regulator, Sebi can be so casual as to make public hugely market-sensitive information without doing its own due diligence about whether the stocks it was clearing were fit to be included in the list. If the regulator itself is responsible for creating large-scale uncertainty in the market as a result of such goof-ups, how can the investing community expect market intermediaries to comply with norms seriously?
Being viewed as a bumbling, faltering policeman, apart from being hopelessly ill-equipped in tackling market misdemeanours, will hardly add to Sebi?s already battered image. Battered because, the very JPC report which prompted Sebi to reverse the decision under discussion, has castigated it severely for failing to act on time and prevent the scam of 2001. Sample this from the JPC report: ?The Committee regret that a full decade after the establishment of Sebi, and the many years that have passed since the last JPC Report, Sebi?s performance has fallen far short of the expectations reposed in it.?
The JPC report has also slammed Sebi for its failure to pinpoint the corporate-broker nexus in ramping up share prices. The JPC said it could not take oral evidence from corporates owing to the non-availability of the final report from Sebi. Even after 18 months of launching investigations, Sebi, the JPC says, has not been able to complete them. Against this background, and the derivatives list fiasco, the fate of Sebi?s probes into a couple of high-profile corporate deals is now the subject of intense speculation.