Companies & Sectors
Need for urgent decision on the Coal Regulator

India has one of the largest proven reserves of coal, but we are still forced to import the mineral instead of achieving production from indigenous sources. Surely this can be avoided

 

In the last few days more reports have appeared in the press that confirm public suspicion that, prima facie, some of the allottees of coal blocks between 2006 and 2009 were indeed given away these blocks due to undue favours. The Central Bureau of Investigation (CBI) probes are continuing.

 
Earlier, the draft report of the Comptroller and Auditor General (CAG) made a reference to the notional loss of Rs10.6 trillion as a result of the allocation of these coal acreages. Many of these allottees are blue chip companies.
 
What is more shocking is that no mining activity has taken place so far. To say it, ironically, allottees have not even scratched the earth, let alone digging the coal out!
 
It is therefore gratifying to note that, on the auspicious day of the presidential inauguration, when Pranab Mukherjee will be sworn in as the 13th president of the republic, the Group of Ministers (GoM) headed by P Chidambaram is likely to meet and discuss the Draft Coal Regulator Bill. The last meeting on the issue took place some two months ago in May.
 
Is it out of place to ask, why not the Draft Coal Regulator Bill be made public, so that all have access to information, and a sensible debate takes place on the issue, before it becomes a law?
 
It looks like, at the moment, we do not have a standardised rule for regulators in general. Obviously, the functions, scope, responsibility and goals would differ from one industry to another, but the least we can and should do is to have a uniform code which can be modified to suit a particular requirement.
 
As far as the regulator for the coal industry is concerned, why not take a bold step and give a carte blanche right to perform without fear?
 
We seem to be short-sighted in setting our target to achieve an additional requirement of some 160-170 million tonnes, which we are currently forced to import, instead of devising ways and means to achieve this production from indigenous sources. We have ‘developed’ mines and supply sources in other countries, be it Indonesia, Australia or Mozambique but are unable to do so in our own country which has one of the largest proven reserves of coal in the world!
 
Why not set a target of achieving an additional indigenous production of 200 million tonnes and envisage the prospect of being a net exporter rather than be a perennial importer? Can’t we learn from our foodgrain experience? In foodgrain production we have to depend upon monsoon, irrigational dam facilities, diversion of rivers, stop flooding and so on, whereas in the coal industry, we are not willing to go the extra mile and dig in deep?
 
One other factor that invariably comes up is the issue of approval or clearances from the ministry of environment and forests (MOEF) where hundreds of proposals are in the queue for clearance for something or other. Here again, local conditions, geography, etc play a vital role in deciding the clearance issue as much as the rehabilitation factor. Also political interference raises its ugly head often and disrupts progress.
 
Yet, a broad set of rules may be laid down and as clearances are individually processed for approval, the MOEF must give interim clearances to carry out tests at site to assess the viability of projects to avoid uncertainty and loss of time for the explorer. Delays of any kind must be avoided at all costs.
 
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected]
 

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COMMENTS

Rajan Alexander

4 years ago

"As far as the regulator for the coal industry is concerned, why not take a bold step and give a carte blanche right to perform without fear?"

This is the right approach to effective management.If this approach is followed, a certain degree of mistakes and corruption need to be tolerated as human beings are not perfect.

Unfortunately after the Anna movement, there exists a decision paralysis. Leave alone coal, no one wants to take decisions. If you decide, you get targeted, if you evade decision, you get targeted and the consensus is better the latter than the former, at least your are not accused of corruption.

Part of the problem is that Jairam Ramesh reserved almost 1/3rd the coal fields as a no-gos. The El Nino - bringing rains in major coal producing countries have raised global prices. So importing coal involves higher energy costs

SEBI slams down on F&O manipulation-I: What was NSE’s role all this while?

Media has faithfully reported SEBI’s decision to change F&O eligibility criteria as a move to curb manipulation. But nobody has asked what was NSE doing all this while? Moneylife has highlighted brazen manipulation in creating the F&O list several times in the past

On Tuesday market regulator Securities and Exchange Board of India (SEBI) announced changes in the benchmarks for scrips to be eligible for trading in the derivatives or futures & options (F&O) segment. As a result, 51 stocks have been dropped from the F&O list. Every single media outlet reported this event as a simple regulatory move to curb market manipulation. None of them have asked what it says about the role of the stock exchanges, which have the primary responsibility of curbing manipulation. The fact is, SEBI’s move is really a slap on the face of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), both of which have been in an unhealthy competition to boost volumes at any cost with the NSE, a private entity running a monopoly public utility, leading the way in creating frothy volumes to keep playing the “valuation game”.
 

Even as SEBI has stepped in to change the eligibility criteria for F&O nobody seems to have gone into what is, on paper, the role and responsibility of the stock exchanges. Indeed, in a supreme irony, while SEBI’s move is designed at checking manipulation by doing away with illiquid stocks, the bourses have either encouraged manipulation or turned a benign eye towards them.
 

According to the new norms, scrips with a minimum trading volume of Rs10 lakh and market-wide position limit (MWPL) or market capitalisation of Rs300 crore would be eligible for entry into the F&O segment, SEBI said in a circular. From now on the minimum Median Quarter Sigma Order Size (MQSOS), which indicate liquidity or order size in a scrip, has been revised to Rs10 lakh, from Rs5 lakh at present, for it to be included in the F&O segment. Scrips which fail to maintain a minimum MWPL requirement of Rs200 crore would cease to be in the F&O segment. Earlier this limit was a mere Rs60 crore. The scrip would exit the derivative segment if MQSOS falls below Rs5 lakh. Earlier this limit was only Rs2 lakh.

How lax were the earlier norms? Currently, 220 scrips trade in the F&O segment in NSE. After the new norms, more than half will have to be dropped.
 

This is not a surprise for us. Our columnists R Balakrishnan and Sucheta Dalal and readers Sham Shekar and Hemant Gupta and also this have pointed out how the eligibility criteria for F&O list is so flawed that a host of dubious stocks have found easy entry into them. We have heard of promoters and large speculators bragging that they know how to get a stock included in F&O.
 

As Ms Dalal wrote “From time to time, the occasional analyst or trader has dared to talk about the dubious quality of several stocks that have been admitted to the Futures & Options (F&O) segment. The inclusion triggers frenzied speculation, which also impacts the underlying cash prices of these scrips. Who chooses these stocks? And, if there is a statistical rationale to the selection, why isn’t it being re-examined to eliminate shares that represent doubtful corporate antecedents? Stock exchanges happily disclaim any responsibility—they say that SEBI chose to take away their decision-making power in this regard.”
 

Earlier, R Balakrishnan had written that “price manipulation starts with the lack of application of mind by the exchanges while adding stocks to the list of Futures & Options (F&O). When a stock with a small free float is included in the F&O list, someone with deep enough pockets can take it on a one-way ride. Regular punters who think that the stock is genuinely overvalued will come in and go short on the futures. Those with money can squeeze the shorts very easily and the stock can shoot up further. Since a majority of the stocks in the current F&O list should not have been there, you can imagine the magnitude of the problem…

 

“Today, the futures prices often move the prices of underlying shares, because many stocks in the F&O segment often have such poor liquidity that you cannot buy or sell even a few thousand shares without impacting the price. The other strange thing is that we have seen even newly listed companies being included in the list of stocks that forms a part of the F&O list. Of course, brokers love the current system as much as the NSE, since most run a casino-type operation where the staple is intraday trades from habitual die-hard clients, proprietary trades by the brokers themselves—and retail punters dealing in small lots in F&O… It is also common for most businessmen to have their ‘house’ broker “make a market” in their company’s stock futures and facilitate benami trades to help the promoter… SEBI should step in and clean the mess. The F&O list should include only stocks with a 5-10 year history, free float of at least 40% of paid-up capital and a minimum of 100,000 shareholders. Also, it has to ensure that there is a thriving and efficient stock-lending mechanism for F&O stocks.”

 

Hemant Gupta a high net worth investor who knows market players very well corroborated Mr Balakrishnan’s comments with this stinging example. “Ispat Industries has recently been included in F&O category. Almost everyone in India will agree that few companies match the wretched track record of this company. At a time, when the steel industry was witnessing highest buoyancy, Ispat was still not showing profits. There have been several allegations about diversion of funds by promoters and inflation of project costs. Their loss-making record is a pointer in that direction. There are whispers in the market about cash sales as well.  I agree that liquidity/floating stock should be a major criterion for eligibility in F&O section. However, should it be the only criterion? Is it not the moral duty of decision-making authorities to give some weightage to promoters’ or company’s track record?
 

It appears that SEBI is intent on encouraging speculation and protecting investors from fraudulent promoters (through pre-emptive measures) is never a priority. Could there be a bigger travesty? If a small-cap (or any company listed on the BSE) company wants to list on the NSE, it must have a two-year dividend-payment record. NSE has refused to list several companies that have paid one dividend even if they are willing to declare an interim dividend for the next year to meet the two-dividend criterion. Does this mean that the bourse believes that big is honest and small is dishonest?

Worryingly, there is more to this than meets the eye. Bringing strange new scrips into the F&O segment appears to be a big scam. It was common knowledge in the stock market since September 2007 that Ispat will come in F&O when share price was hardly Rs15. I had dismissed such talks as implausible. Does this mean that there are hidden hands working at getting particular scrips transferred to F&O after a good two-three-month interval to allow knowledgeable people to buy low and make a killing? The F&O inclusion by SEBI needs investigation.”

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COMMENTS

R P SURANA

4 years ago

IT IS VERY WELCOME STEP BY SEBI. BUT SEBI MUST ANSWER WHAT ITS CHAIRMAN AND OFFICIALS WERE DOING ALL THESE YEARS? WERE THEY NOT AWARE OF SUCH MANIPULATION? ARE THEY NOT RESPONSIBLE FOR DRIVING AWAY RETAIL INVESTOR BY MAKING THEM LOOSE THEIR LIFE TIME SAVING.

CONGRATULATION TO SEBI AND ITS CHAIRMAN FOR SUCH A FIRM STEP. LOOK AT THESE SCRIP RATES ON 26/7/12, CRASHED LIKE NINE PIN

Rajkumar Singh

4 years ago

Thanks for the informative news.

Will you please tell me whether the general public is affected by the SEBI manipulation, and if yes, how?

It appears to me to be a problem posed for the listed companies.

If it is so, what should a common man do to avoid getting into such imbroglios?

Rajkumar Singh

4 years ago

Thanks for the informative news.

Will you please tell me whether the general public is affected by the SEBI manipulation, and if yes, how?

It appears to me to be a problem posed for the listed companies.

If it is so, what should a common man do to avoid getting into such imbroglios?

Dayananda Kamath k

4 years ago

is there any provision inlaw to prosecute the regulators for their callous attitutde even after bringing irregularities to their notice.

REPLY

NSriramamurty

In Reply to Dayananda Kamath k 4 years ago

You can Complain on SEBI to Minister of Corporate Affairs and Prime Minister.Ofcource ,they may simply Forward it to SEBI .
Hence Instead of Worrying on Complaining on SEBI, it is Better to Concetrate on Complaining on NSE / BSE / Mcx to SEBI, who may call their Explanation.
The Losses to Common Traders are by Actions by Exchanges in Collusion with Brokers, Promoters, Intermediates for their Money Power .

Dayananda Kamath k

In Reply to NSriramamurty 4 years ago

it is of no use to complain to any authority in india.because everybody wants to see what benefit he will get if he persue the complaint.or it effects dirctly to them.i have made complaints of how every regulator and authrority in financial market have failed to do ther duty to every authority including primeminister and president seeking permission to prosecute primeminister for his failure to take action and making the public money a well as govt money is lost by these actions/nonactions of the regulators and authorities. i have also posted an open appealto chief justioce of india to moneylife. iam waiting for the same to be published and the reponse form the public and supremecourt, ato

Gerard Colaco

4 years ago

"Derivatives are financial weapons of mass destructions." - Warren Buffett

NSriramamurty

4 years ago

Excellent Article with Facts giving Full Insight to Reader .
I Want SEBI to Reduce the Presant F&O Lot Value to be Rs. Two Lakhs & above , Without any Lot Value Limit .As Always Looting Common Traders Monies by many Manipulations exist in Indian Markets,SEBI Should Reduce Lot Value to Rs. One lakh and Maximum Value Upto Rs. Three Lakhs on Share Price Increases. Thus The Losses to Common Trader by Monied Players will be Lower ,allowing Trader not to get Liquidated Fully .For Me,this Change is Most Importanat.

suhas pai

4 years ago

Can RTI come handy for such cases???

Kush Katakia

4 years ago

This explains why Single stock futures never gained popularity in matured markets.

Mukesh Lohani

4 years ago

The basic function of financial sector is mobilising saving of thousands of people and deploys it in productive use. But in India it function in a manner which takes hard earned saving of thousands of people and put in the pockets of promoters and so called protector of these are hand in glove with those touts. Regulators keep on sleeping. Scams are advertised on national media and sold to people of this country. Ring master of the longest running Ponzy scheme sponsors National Teams. Media is keep on hiding the largest financial case of this country fought in apex court.

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