Congress MP Nirupam has alleged that Reliance Infra and the MERC are hand-in-glove and Maharashtra government must take steps to revamp the constitution and functioning of the state power regulator
Sanjay Nirupam, the Member of Parliament (MP) from north Mumbai and Congress leader, has asked the Maharashtra government to take steps to revamp the constitution and functioning of power regulator and appellate authority.
Nirupam, in a letter sent to Maharashtra chief minister (CM) Prithviraj Chavan has said, "There is a dire need to rein in vulture capitalists like Reliance Infra (RInfra) to prevent them exploiting and looting their consumers. The power reforms must address issues of functioning, costing and pricing of discoms, like RInfra and Tata Power so that the consumers become the ultimate beneficiaries of privatisation of the power sector."
On Sunday, the Congress MP withdrew his fast following assurance from the CM. Nirupam took this step after the Maharashtra government announced a reduction in power tariff in the rest of the state.
Nirupam had asked Reliance Infra, which supplies power in the city to withdraw three surcharges that are being charged at present.
He had also alleged Reliance Infra and the Maharashtra Electricity Regulatory Commission (MERC) were hand-in-glove and had demanded a probe in the matter.
Here is the letter sent by the Congress MP to the CM...
On one hand, SEBI barred Karvy Stock Broking from taking new clients for 18 months, at the same time it says since the depository participant had undergone such prohibition, there is no need for further penalty
Market regulator Securities & Exchange Board of India (SEBI) issued an order to penalise Karvy Stock Broking Ltd from signing new clients for the next 18 months. However, the same order says since Karvy Stock Broking as depository participant had undergone such prohibition for 18 months and 26 days, there is no need for further penalty.
Prashant Saran, whole time member of SEBI, in an order issued on 28th January said, "...the acts and conduct of Karvy DP are unfair and fraudulent within the scope of the Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Markets) Regulations, 2003 (PFUTP Regulations). I find that Karvy DP by its commissions and omissions had violated the provisions of Section 12 A (a), (b) and (c) of the SEBI Act, Regulation 3(a), (b), (c) and (d) and 4(1) of the PFUTP Regulations and also Regulation 19, 42(2) and (3), 43, 46, 52 of the DP Regulations. Further, by actively facilitating key operators, it is established that Karvy DP had violated the code of conduct specified in clause 3, 9, 12, 16, 19, 20 and 22 of the code of conduct specified in the DP Regulations."
He said, "I note that the Karvy group as a whole appeared to have favoured an extremely aggressive approach to business leading to their direct involvement in the IPO manipulation. Karvy DP has tried to disown the responsibility. I note that the entire case revolves around the unusual business practices adopted by Karvy group entities. Karvy DP has tried to distance itself from the activities of the other Karvy entities and the key operators, however, the discussion above makes it clear that the operations of the Karvy group entities were supplementary to their roles and complementary to each other. This gives a
strong presumption that Karvy group entities had acted in close coordination and the whole group should be viewed as one, irrespective of the separate legal identity of different entities."
The IPO scam goes back to 2006 when SEBI investigations conducted by then chairman M Damodaran, unearthed that shares reserved for retail investors were illegally acquired by various entities through tens of thousands of fake dematerialised (demat) accounts and fictitious applications.
SEBI's preliminary examination inter alia revealed that Karvy Stock Broking had opened various demat accounts in the fictitious/ benami names and aided and abetted various key operators to corner the shares in the IPO.
Based on the prima facie findings, SEBI issued various directions against 82 financiers, 24 key operators, 12 depository participants (DPs) and two depositories.
Risk management models used by professional investors often assume that securities can be traded infinitely. When liquidity dries up, especially in a systemic way during periods of crisis, it becomes very expensive to trade
"When there is rain, umbrellas become expensive. But when there is no rain, nobody cares about the umbrella and the prices are low. The case of Liquidity is similar", says Professor Yakov Amihud, Ira Rennert Professor of Entrepreneurial Finance at the Stern School of Business, New York University. Prof Amihud has been actively researching the effects of liquidity of assets on their returns and values, and the design and evaluation of securities markets' trading methods for over three decades.
In conversation with Dr Nupur Pavan Bang of the Insurance Information Bureau of India and Prof Vikram Kuriyan of the Indian School of Business, Prof Amihud explains that liquidity risk is often ignored by investors. Risk management models used by professional investors often assume that securities can be traded infinitely. When liquidity dries up, especially in a systemic way during periods of crisis, it becomes very expensive to trade.
Firms like Morgan Stanley and Long Term Capital Management have suffered huge losses due to underestimating the cost of liquidity.
So when does liquidity dry up? "It is a chicken and egg story", says Prof Amihud. When prices fall, traders with leveraged positions need to come up with additional funds. If funding is too costly, traders must liquidate part of their positions and this makes stocks less liquid. When stocks become illiquid, their prices fall further; this exacerbates the problem of illiquidity. In addition, information asymmetry is an important determinant of illiquidity. When there is overall panic and information gaps between traders widen, transaction costs go up and liquidity dries up.
The introduction of high frequency trading (HFT), algorithmic trading and technology improvements in terms of direct market access and co-location has not hurt the markets in terms of overall liquidity. Every generation, there are some people who are more technologically advanced than the others and consequently they have an advantage over the others. In earlier times, people who had telephones had an advantage over those who did not have telephones. Then came computers. Initially, only a few had computers. Now, everyone has it.
It's not an arms race, which imposes a dead-weight cost with no benefit. For example, when both India and Pakistan did not have nuclear weapons, they were equal. Now both have it, and they are still equal, but after burning billions of dollars. Similarly, people argue that when there was no HFT every one was equal in terms of technology. And now with HFT, everyone might eventually reach there and then again everyone will be equal. So why have it? Well, by improving the speed of transactions, HFT helps improve stock liquidity. Limit orders are tighter (have narrower gap between the buying and selling price), which benefits all traders who can trade at lower cost. This applies particularly, to large and more liquid stocks, in which HFTs are more actively involved.
The level of illiquidity and its price have declined over time. This is not an anomaly which will disappear once the market finds out about it. It will stay there and benefit all traders and the economy at large.
On being asked about liquidity in the Indian markets, Prof Amihud says that India is among the least liquid markets in the world. Ironically the corporate world would get upset if the Reserve Bank of India (RBI) would raise bank interest rates. Yet, they are not worried about the illiquidity in the securities markets, which raises their cost of capital. If the Securities Exchange Board of India (SEBI) comes out with a regulatory scheme that would make the market more liquid, it will reduce the corporate cost of capital, akin to the RBI lowering interest rates.