SEBI lets off NSE with mere warning for negligence in modification of client codes

SEBI found that the volume of transactions wherein modifications were done at NSE exceeded Rs55,000 crore during March 2010

Market regulator Securities and Exchange Board of India (SEBI) issued a warning to National Stock Exchange (NSE) for being “negligent in discharge of its duties” in a case of modification of client codes. However, SEBI did not impose any monetary penalty.

Passing an order against NSE in a case dating back to March 2010, SEBI's whole-time member Prashant Saran asked the Exchange, “to be more cautious and perceptive in discharge of its regulatory duties”.

The order follows an investigation by SEBI into "modification of client codes" by brokers, pursuant to observations by the Finance Ministry about many such modifications taking place in derivatives transactions at the NSE during March 2010.

Modification of the client codes is a practice under which brokers change the client details in sale and purchase orders of securities after the trades are conducted.

While it is legally permitted to rectify inadvertent errors in punching the orders, there have been concerns that such modifications could be misused for manipulative activities in the market.

In March 2010, the percentage of institutional trades where client codes was modified vis-a-vis total institutional trades was 1.58%. However, it noted that the percentage of orders modified has now come down to as low as 0.01% in terms of number of orders, on updation of the data by NSE since 11 March 2011.

The order said that SEBI was “convinced that NSE has been negligent in discharge of its duties even though it might not have been a party to the mischief...”.

“While dealing with matters concerned with discharge of regulatory functions, there would be few occasions where monetary penalty would be appropriate,” it said.

Suspending or interrupting the working of the stock exchanges is also not an appropriate penalty, it said, as it involves negative externalities and could be considered only in extreme cases.

“Therefore, given the nature of the lapses and the efforts made, I am of the opinion that penalty of warning would be appropriate in this case,” the order said.

On an analysis of the data obtained from NSE, the order said, it was found that the volume of transactions wherein modifications were done, exceeded Rs55,000 crore in terms of value, during the month of March 2010.

“It was also seen that certain brokers carried out a very large number of modifications in the month,” it said, adding that total number of client code modification was definitely high during March 2010, compared to the other months.

The total value of the modified orders has also shown a decreasing trend from Rs55,468.88 crore in March 2010 to Rs18,019.87 crore in April 2010, a decline of 67.51%,” SEBI said.

Similarly, it said, the number of modified trades in currency derivative segment, has increased from 863 during January, 2010 to 19,395 in the month of March, 2010 showing an increase of 2,147% and the value of modified trades also increased from Rs461 crore in January, 2010 to Rs13,282 crore in March, 2010, an increase of 2,781%.

SEBI further said that it has a significant role in shaping the Indian stock market, NSE should have sensed the danger in the increasing instances of client code modification and should have adopted certain corrective measures in order to bring such incidents to a minimum.

“A Stock Exchange, being the first level regulator has to sense the aberrations in the market and alert SEBI so as to work out modalities for preventing any harm to the investors and to promote healthy development of the securities market,” it said.

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ADB projects moderate increase of 7% in India GDP

According to the Asian Development Bank, India’s growth would depend on the the country’s ability to push reform and address issues related with investments

Projecting a moderate increase in growth rate for India to 7% in 2012-13, the Asian Development Bank (ADB) said strong economic performance would depend on the country’s ability to push reforms agenda and address issues constraining investments, reports PTI.

 “The Gross Domestic Product (GDP) growth should edge up to 7% in FY2012(-13) and 7.5% in FY2013(-14), after falling to 6.9% in FY2011(-12) from 8.4% the year before,” the bank said in its publication Asian Development Outlook (ADO).

The Indian government, however, has projected a growth rate of 7.6% for the current fiscal and Reserve Bank of India (RBI) is slated to come out with its forecast the next week.

“An expected easing in monetary policy after a long period of persistent inflation and rate hikes might help stimulate investment over the coming year, but its impact is likely to be limited until obstacles like land purchase and environmental regulations, which are currently deterring both domestic and foreign investors, are addressed,” said Changyong Rhee, ADB’s Chief Economist.

 A number of bills and measures to improve India’s investment environment have been introduced in Parliament, but they are making little progress amidst lack of sufficient consensus for immediate reforms, the publication said.

 It further pointed out that the recent rise in the pace of road construction and clearances for power projects is a positive signal, but more is needed to substantially increase levels of investment.

As regards 2011-12, the ADO said, the slide in growth reflected falling exports, weaker consumer spending and a slump in investment. Industrial growth dropped to a decade low of 3.9%, although services remained robust, contributing nearly 80% of overall GDP growth for the year.

On inflation, ADB said, it eased late in the year, after 13 consecutive policy rate hikes by the RBI, but a sharp first-half pickup in exports was not sustained in the second, as global demand fell.

The dip in inflation is expected to continue on the expectation of normal monsoons and more stable global commodity prices, with the average rate expected to be 7% in 2012-13 and 6.5% the following year.

However the longer-term outlook for consumer prices will also depend on structural reforms to improve production and distribution of food, as India’s consumption patterns and incomes change.

 It further said that moderation in the growth of non-oil imports in 2012-13 and improved economic prospects in the advanced countries in 2013-14 are expected to help the current account deficit to improve to 3.3% in 2012-13 and further to 3.0% in 2013-14.

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SEBI imposes Rs4 lakh fine on Delhi Stock Exchange subsidiary

SEBI imposed the fine of Rs4 lakh on DSE Financial Services for not monitoring and restricting physical access to its servers to oursiders

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) imposed a fine of Rs4 lakh on DSE Financial Services Ltd (DSFSL), a unit of Delhi Stock Exchange,  for violating rules of functioning of its office and belongings, reports PTI.

During the relevant period, DSFSL was registered with SEBI as member broker of the National Stock Exchange of India Ltd.

“In exercise of the powers conferred upon the adjudicating officer under section 15 I of the SEBI Act...a penalty of Rs4 lakh has been imposed under sections 15F and 15 HB of the SEBI,” the market regulator said in a notification.

“Therefore, considering all the facts and circumstances of the case, ... a suitable penalty (Rs4,00,000) needs to be imposed on the noticee for the aforesaid violations or non-compliances,” it added.

The regulator had conducted an inspection of DSFSL during 8 February 2007 to 23 February 2007 with regard to its activities as a stock broker and also as a depository participant.

“It was also observed during the inspections that DSFSL did not monitor the physical access to its server room. As a result, unauthorised personnel could freely enter the area of DPM terminals which could prove to be a safety hazard,” it said.

SEBI further said that the objectives of such inspections are to point out the lacunae or deficiencies in the functioning of the subsidiaries of the stock exchanges.

“...so they can rectify the same and it do not come in the way of fair functioning of the securities market or hamper the interests of the investors and other market participants,” SEBI said.

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