BSE’s Rs107 crore liquidity boost to derivatives brokers

“We have been working very hard on the structure of the programme and have taken extensive feedback from market participants in designing the programmes,” BSE MD & CEO Madhu Kannan said

Mumbai: Bombay Stock Exchange (BSE), the country’s oldest stock exchange on Wednesday said it has launched a series of liquidity enhancement incentive programmes (LEIPS), with the goal of creating liquidity in the derivatives segment, reports PTI.

As part of these programmes, BSE will incentivise all its derivatives members by paying them as much as Rs107 crore over the duration of these two programmes, a BSE statement said here.

BSE will pay incentives worth Rs5 crore in the first phase of the two-tier series of LEIPS-I (Beta) to participating members.

In the second phase of the programme (or series LEIPS-II), incentives to the tune of Rs102 crore (Rs17 crore on a monthly basis) would be paid out to all participating members.

The LEIPS-I (Beta) will run from 28 September to 25 October 2011 and LEIPS-II will commence on 26th October and run for six months.

Market regulator Securities and Exchange Board of India (SEBI) had allowed the exchanges to introduce liquidity enhancement schemes in the equity derivatives segment this June.

The focus of the first two programmes will be on derivatives on the bellwether index Sensex and its underlying 30 stocks, it said.

“Within the guidelines prescribed and direction provided by SEBI, we are happy to announce our biggest ever initiative in the form of the LEIPS in the derivatives segment.

“We have been working very hard on the structure of the programme and have taken extensive feedback from market participants in designing the programmes,” BSE MD & CEO Madhu Kannan said.

“Sensex is the true barometer of our economy and we are hopeful of extensive market participation in the most well- known and globally tracked index,” he added.

The key features for the LEIPS structure include payments to all participating members for derivatives traded volumes and also for open interest (OI) maintained in the segment.

Additionally, the exchange has decided to abolish payments in some cases of the derivatives segment and cap it at Rs50 in some other cases, which works out to 1/100th the fees for options trading on other exchanges.

Liquidity in the segment will also be ensured with the presence of market makers. However, incentive payouts will be made to all participating members and not just the market- makers, the BSE said.

The first programme in the two-tier series is LEIPS-I intended to assist BSE’s derivative trade members assess and test their end-to-end systems for quoting, trading and clearing capabilities for BSE derivatives segment.

The second programme in the series-LEIPS-II- is intended to help in building a healthy derivatives order book on the BSE derivatives platform. All derivatives members would be incentivised for their participation—some as market makers and others as general market participants, the exchange said.


SAT asks Sahara to explain fund mobilisation mode

The matter came up before the SAT after Sahara India Real Estate Corporation and Sahara Housing Investment Corporation had appealed against a SEBI order to refund the money raised through an issue of optionally fully convertible debentures

Mumbai: The Securities Appellate Tribunal (SAT) on Wednesday directed the Sahara Group to file a fresh affidavit explaining how it had raised funds from as many as 66 lakh investors without even issuing an advertisement, reports PTI.

“Our sympathies are not with the appellant (Sahara Group) since you have not told us how you had reached out to 66 lakh investors and raised funds from them without even issuing an advertisement. We want to know how it happened.

“Of course, this will have no binding on the case.

Could you have an affidavit about how much money was raised and the mode adopted to raise the money? This is only for our information. This is looking very odd,” SAT presiding officer NK Sodhi told Sahara counsel Fali S Nariman.

The matter came up before the quasi-judicial body SAT after two Sahara group companies—Sahara India Real Estate Corporation and Sahara Housing Investment Corporation—had appealed against an order by the Securities and Exchange Board of India (SEBI) to refund the money raised through an issue of optionally fully convertible debentures.

Mr Nariman argued that SEBI had no jurisdiction and its provisions do not apply on his client’s bonds, unless securities are listed.

He argued that every issue regarding Sahara’s red herring prospectus must be dealt with the corporate affairs ministry and the Registrar of Companies (RoC).

“The only competent authority is the RoC. It is not SEBI at all and therefore its guidelines don’t apply on us.

The SEBI board says my client is guilty of violating Section 117. But I say SEBI has no jurisdiction and that it has misunderstood its authority.

“Besides, the Company Law Board and SEBI could not have worked without consulting each other. They should have known.

It is impossible to run a government without inter-departmental correspondence. After all, they are supposed to work ‘in tandem’ to protect investors' interests,” Mr Nariman said.

SAT too agreed that SEBI itself had chosen not to regulate unlisted companies.

Mr Nariman also questioned why they are not entitled to a copy of the investigative report as charges are based on it.

He also pointed out that out of 66 lakh of investors, the investigative report has picked up the case of only two investors to try and demolish Sahara’s private placement of optionally fully convertible debentures (OFCDs).

However, SEBI counsel Arvind P Datar argued that OFCDs are a ‘hybrid’ instrument in the sense that it is a debenture or debt instrument for 119 months, and on the 120th month when it is converted to shares, it becomes equity.

“My submission is that the Sahara has not disclosed everything. They tried to term it as a ‘private’ placement, when it was actually a public issue. The RoC giving the group a certificate is not approval of their act,” Mr Datar said.

He also cited an instance where Sahara India Real Estate Corporation’s directors who are sons of the Group chairman, resigned merely two days prior to the extraordinary general meeting.

“The company had no whole-time directors. Three months prior to the resolution to raise money through OFCDs, the company’s fixed assets were nil and its net current assets were merely Rs6,54,000. Its debit balance is nothing but losses carried forwarded.
“A loss-making company with a paid up capital of merely Rs10 lakh, wanted to raise Rs20,000 crore! We don’t know when it began raising deposits. When the ministry of corporate affairs asked them about deposits raised, they said that they will furnish details after the issue,” the SEBI counsel said.

Citing documents, he argued that there are so many ‘introducers’ who have affixed signature, but whose address proof were not furnished. Besides, computer code numbers were also assigned to these introducers. He also pointed out aspects which were not mentioned by the company’s red herring prospectus. All this shows that these debentures were issued to the public and that it was not a private placement.

The tribunal will continue to hear the arguments on Thursday.


Land Acquisition Bill: Developers jittery about cost impact; activists say it doesn’t ensure livelihood of displaced

Higher cost of land on outskirts of cities may hurt low-margin affordable housing projects. Still, there are those who believe acquisition must be made harder not just for the sake of farmers, but also for food security

The new Land Acquisition Rehabilitation and Resettlement Bill, which was tabled in parliament today, will have little near-term impact, but if the proposed high compensation rates are implemented, it would result in developers having to shell out much more, according to Nomura Financial Advisory and Securities (India).

"Under the proposed set of rehabilitation and resettlement guidelines, the developers' cost of acquiring land greater than 100 acres is likely to increase by 25%-35% depending on current costs, in our estimates," the brokerage said in a report on the proposed legislation. While the cost will increase manifold for large-scale developers, it is a fact that right now not many are interested in acquiring more agricultural land.

Most big developers like DLF and Unitech are sitting on large tracts of land without making progress on projects, and they are even looking to sell land to cut debt. Some others, like HDIL, are more interested in acquiring land vacated by industries within the city limits.

Nomura said, "Large affordable housing projects can get impacted by this as a large amount of land is yet to be acquired on the outskirts of the city. Any increase in the land cost will further weigh on low-margin affordable housing projects. However, developers still interested in purchasing large-sized land parcels for township development, or SEZs, could possibly divide their land acquisition amongst various subsidiaries to stop breaching the 100 acre mark."

According to the Bill, the value of land would be determined either by the stamp value or average sale price for similar deals or similar tracts in the vicinity. In urban areas, the cost of acquisition will be at least twice the market value, whereas in rural areas, it will not be less than six times, although this could be revised downwards to four times.

Developers have expressed their displeasure over the proposed legislation, saying it is 'impractical' and 'anti-development.' In the past few years, many large projects have been delayed due to agitations and judicial action against acquisition of land or inadequate compensation.

The new Bill does not stop private developers from buying land directly from farmers at an agreed price, but in case the size of land acquired is more than 100 acres, the developer will be liable to provide rehabilitation and resettlement benefits.

The Bill has also been criticised by activists and citizens' forums.

"It is extremely unfortunate that a key legislation is being pushed in such a hurry and the Cabinet further dilutes some of the positive developments in the earlier draft," the National Alliance for People's Movement (NAPM) said. "It is ironic that when the mood in the country is against land acquisitions, the Cabinet has brought in the provision that if a private company is acquiring land over 100 acres for a public purpose, all land will be acquired by the government." The organisation has called on the ministry to hold a public consultation on the issue at the regional and central levels before adopting the Bill.

NAPM has also rejected the approach to the matter by market value of the land, saying that this is never fully worked out and that it does not automatically ensure attainment of alternative sources of livelihood, especially for adivasis and dalits. Instead, provisions should be made for alternative livelihood or mandatory employment for the project-affected people. It also says that the 'urgency clause' should be done away with and be limited only to natural calamities or for defence purposes only in the time of war.

Former finance and power secretary EAS Sarma, too, is against the acquisition of land by anyone for private corporations. Acquiring of agricultural land must be made difficult not only for the sake of farmers, but also for food security. In a letter to rural development minister Jairam Ramesh, Mr Sarma said, "The area limit beyond which the government will step in could be reduced to 20 acres. Also, this Bill will not address a host of other dimensions of people's displacement. Displacement occurs even in alienation of public lands to private parties and due to mining franchises."


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