The intermediaries would need to submit scanned copies of investor documents to the KRAs and retain the physical documents with themselves. However, physical documents would need to be submitted, whenever KRAs demand them
Market regulator Securities and Exchange Board of India (SEBI) has done away with the submission of physical documents by investors to the KYC Registration Agencies (KRAs) in favour of the electronic format only. The move is seen as an attempt to streamline the process of “Know Your Client” (KYC) procedures.
The intermediaries, including mutual funds, would need to submit scanned copies of investor documents to the KRAs and retain the physical documents with themselves.
However, the physical documents would need to be submitted, whenever KRAs demand them.
So far, KRAs—which are responsible for maintaining KYC records across all SEBI-regulated entities—were required to maintain the original KYC documents, both in physical as well as electronic formats.
To minimise the physical paperwork, SEBI has now amended its KRA regulations, allowing the market intermediaries to keep the original investor documents in physical form with them and submit only the scanned copies to the KRAs.
“The intermediary shall perform the initial KYC/due diligence of the client, upload the KYC information with proper authentication on the system of the KRA, furnish the scanned images of the KYC documents to the KRA, and retain the physical KYC documents,” SEBI said.
Even in cases of any change in investor KYC details, the market intermediaries would retain the updated documents in physical form with themselves.
As per the new norms, all market intermediaries and agents (RTI and STA) acting on behalf of mutual funds would also have to submit only scanned KYC documents to KRAs.
However, the intermediaries and mutual funds would have to furnish the physical KYC documents or authenticated copies, whenever desired by the KRAs, SEBI said.
If the Nifty holds today’s low and closes above 5,675, the market will head higher
The market settled lower as continued political uncertainties at the Centre ignited fresh worries about fate of the fiscal reforms of the government. If the Nifty holds today’s low and closes above 5,675, the market will head higher. The National Stock Exchange (NSE) reported a volume of 68.24 crore shares and advance-decline of 567:971.
The Indian market opened in the positive on supportive global cues and assurance by finance minister P Chidambaram on Saturday that the government would relax rules for foreign investors in government and corporate bonds next month. Markets in Asia were mostly higher as Cyprus managed to broker a deal with international lenders, thus avoiding a collapse of its banking system.
The Nifty opened 56 points higher at 5,707 and the Sensex gained 158 points over its previous close to resume trade at 18,894. Buying in realty, consumer durables, oil & gas and state run companies helped the market hit its intraday high in initial trade itself. At this point the Nifty touched 5,718 and the Sensex rose to 18,950.
Profit taking at higher levels saw the benchmarks paring part of their gains and trading sideways in the morning session. The indices continued to remain range-bound in noon trade as optimism from the global markets boosted investor sentiment back here.
However, the market which started the day on a firm note sank into the red around 2.00pm as political tensions came to the fore once again. The Samajwadi Party threatened to withdraw support to the UPA government at the Centre. Concerns of an early election derailing the reforms push worried investors. The development led the benchmarks to their lows in the last hour of trade. The Nifty fell to 5,624 and the Sensex went back to 18,655 at their respective lows.
Erasing all its gains in the late session, the market closed in the negative for the seventh day in a row. The Nifty fell 18 points (0.31%) to 5,634 and the Sensex closed the session at 18,681, down 54 points (0.29%).
The broader indices underperformed the Sensex today, as the BSE Mid-cap index declined 0.32% and the BSE Small-cap index dropped 0.80%.
The top sectoral gainers were BSE Realty (up 0.79%); BSE Power (up 0.56%); BSE Oil & Gas (up 0.49%); BSE Consumer Durables (up 0.43%) and BSE PSU (up 0.20%). The main losers were BSE Capital Goods (down 1.44%); BSE Auto (down 0.78%); BSE Metal (down 0.71%); BSE Bankex (down 0.66%) and BSE Fast Moving Consumer Goods (down 0.41%).
Nine of the 30 stocks on the Sensex closed in the positive. The major gainers were ONGC (up 2.96%); NTPC (up 2.04%); HDFC (up 1.16%); Dr Reddy’s Laboratories (up 0.77%) and Hindustan Unilever (up 0.72%). The chief losers were Hero MotoCorp (down 2.42%); Tata Steel (down 2.28%); Larsen & Toubro (down 2.19%); Bharti Airtel (down 1.95%) and GAIL India (down 1.94%).
The top two A Group gainers on the BSE were—GMR Infrastructure (up 9.52%) and Essar Oil (up 8.44%).
The top two A Group losers on the BSE were—MMTC (down 4.93%) and Unitech (down 4.18%).
The top two B Group gainers on the BSE were—Filatex India (up 20%) and KEW Industries (up 18.50%).
The top two B Group losers on the BSE were—Wim Plast (down 19.77%) and Gennex Laboratories (down 19.27%).
Of the 50 stocks on the Nifty, 20 ended in the green. The key gainers were DLF (up 5.04%); NTPC (up 2.05%); BPCL (up 2.04%); Power Grid Corporation (1.76%) and ONGC (up 1.74%). The top losers were Bank of Baroda (down 2.81%); Hero MotoCorp (down 2.75%); L&T (down 2.57%); Tata Steel (down 2.52%) and IDFC (down 2.34%).
Markets in Asia, with the exception of the Shanghai Composite, closed in the green following the positive outcome of the Cyprus bailout deal. The deal clears the way for 10 billion euros ($13 billion) of emergency loans and moves Cyprus toward avoiding the threat of default.
The Hang Seng advanced 0.61%; the Jakarta Composite surged 1.16%; the KLSE Composite climbed 1.04%; the Nikkei 225 jumped 1.69%; the Straits Times gained 0.385; the Seoul Composite surged 1.49% and the Taiwan Weighted settled 0.77% higher. Bucking the trend, the Shanghai Composite shed 0.07%.
At the time of writing, the key European indices were trading with gains between 0.87% and 1.67% and the US stock futures were in the positive, indicating a green opening for US stocks later in the day.
Back home, institutional investors—both foreign as well as domestic—were net sellers in the equities segment on Friday. While FIIs pulled out Rs14.20 crore from stocks, DIIs withdrew Rs135.57 crore on the same day.
Pharma major Venus Remedies today announced launch of its stress reliever over the-counter (OTC) product ‘Ezenus’ in domestic market, aiming to capture 5% of $100 million market in the stress segment within the next three years. The stock fell 0.74% to close at Rs240.90 on the NSE.
Fertiliser and seeds company Zuari Agro Chemicals today said it has shut down its plants for scheduled annual maintenance. The company has a manufacturing facility at Goa, with four plants dedicated to manufacturing of urea, DAP and NPK based fertilisers. The stock declined 4.94% to close at Rs147.25 on the NSE.
Cairn India today began natural gas sales from its prolific Rajasthan block on borders with Pakistan even as it put another oilfield in the area on production. Cairn and its 30% joint venture partner ONGC will initially produce about 5 million standard cubic feet per day (0.15 million metric standard cubic meters per day) of gas, which will go up to a maximum of 1 mmscmd by next year. The stock shed 0.04% to close at Rs277.20 on the NSE.
SEBI’s new regulation on illiquid stocks will have an adverse impact on equity markets in India and could alienate current and future investors
Illiquidity in many micro- and small-cap stocks has always been of a serious concern to the small Indian investor and is one of the reasons why manipulation is so rampant. The Bombay Stock Exchange (BSE) houses a lot of such companies but both SEBI (Securities and Exchange Board of India) and BSE do nearly nothing about it. SEBI has finally come up with a harebrained idea to combat manipulation by taking action on illiquid stocks which will take effect from 1 April 2013.
SEBI, India’s securities market watchdog, may have shot itself in the foot yet again, when it plans to regulate illiquid stocks. Its earnest effort to curb manipulation, while laudable, may have damaging effects on the long term future of Indian equities market. Vide the circular CIR/MRD/DP/6/2013, issued on 14 February 2013, it plans to introduce trading through periodic call auction for illiquid scrips.
SEBI’s has taken the term illiquidity to a whole new level. According to the watchdog, an illiquid stock is a stock that satisfied one or more of the following criteria:
1. The average daily trading volume of a scrip in a quarter is less than 10,000;
2. The average daily number of trades is less than 50 in a quarter;
3. The scrip is classified at illiquid at all exchanges where it is traded.
Let us assume that a stock XYZ is quoting at Rs500. So, in order for it to be a ‘liquid’ stock, it ought to have an average trading value of Rs50 lakh (Rs500 x 10,000; assuming share price does not move). However, on the other hand, if the share price of another stock, say PQR, is valued 50 paise, then the average value is Rs5,000 (0.50 x 10,000). It must be noted that majority of the manipulation happens in the micro-cap segment (and are often called “penny stocks”). This means a stock valued at 50 paise has a higher probability of being rigged than a stock valued at Rs500. After all, a promoter or market player needs just Rs5,000 to influence the price in the normal market and make it ‘liquid’. Remember, sometimes even great and well-run companies can be illiquid. So, if well-run companies are put into a separate trading bracket, there will be a stigma or label attached to them.
For a long time, Moneylife has been covering stocks on manipulation, especially those stocks which tend to be ‘illiquid’ under SEBI’s current criteria. You can check out the Unquoted section in our Moneylife magazine every fortnight. You can also check it on our website over here. We even carried an exclusive cover story last year devoted to stock price manipulation and how ineffectual our market regulators have been. We had found out that regulators and exchanges had not even taken action on errant companies, even those who have committed blunders in the past. Sometimes, all it requires is basic monitoring skills to nab such companies. SEBI has, instead of tackling the problem on manipulation head-on and investigating each situation on a case-by-case basis by using its expensive (funded by taxpayers’ money) so called IMSS surveillance system, targeted ‘illiquid’ stocks.
More pertinently is what could possibly happen during the call auction. According to the circular, it states: “The call auction duration shall be one hour, of which 45 minutes shall be allowed for order entry, order modification and order cancellation, eight minutes shall be for order matching and trade confirmation and remaining seven minutes shall be a buffer period for closing the current session and facilitating the transition to next session. The session shall close randomly during the last one minute of the order entry between the 44th and 45th minute. Such random closure shall be system driven.”
What happens during the eight minutes is crucial. There is bound to be frenetic trading coupled with quick order modification and such. It is very difficult to skillfully place an order within a short frame of time let alone modify it. Some brokers may even refuse to trade in such scrips fearing that market regulators will be onto them for rigging. Some may even decline their customers’ orders on similar grounds. A combination of all this will exacerbate the liquidity scenario. This is also antithesis of free market capitalism where brokers and customers are free to place an order at their time of liking instead of the stipulated eight minute window.
According to the circular, it was SEBI’s Secondary Market Advisory Committee (SMAC) who came upon the call auction idea. The circular states: “SMAC also made recommendation on the introduction of trading through periodic call auction mechanism for illiquid scrips in the equity market.” Once this regulation is put into force, the most affected party will be BSE where majority of the thinly traded stock takes place.
Ashishkumar Chauhan, managing director and chief executive officer of BSE, sits on the SMAC committee. According to SEBI website, the SMAC committee consists of the following ‘experts’ who advocated this scheme:
• Ms Maninder Cheema, deputy general manager, Market Regulation Department, Division of Policy, SEBI