Regulations
Why UK Sinha’s talk of controlling stock manipulation is not credible

SEBI chief wants to unveil new insider-trading norms by March 2015 while the market regulator ignores hundreds of cases of brazen stock manipulation

 

Market regulator Securities and Exchange Board of India (SEBI) is likely to unveil latest version of its insider trading regulations before FY15 end following recommendations of the NK Sodhi committee. Does this mean, SEBI's current insider trading norms have failed to safeguard investors? Or may be 'all is well' for the market regulator and there is not a single incident of insider trading, stock manipulation. Or may be SEBI and the stock exchanges, the first line of regulators just do not care about financial consumers?

 

Now see the statement from the top brass of SEBI. UK Sinha, the chairman of SEBI, while inaugurating FICCI’s annual capital market conference in Mumbai on Wednesday, said the market regulator is in favour of a soft enforcement regime coupled with risk-based supervision with all these measures coming in before the end of this fiscal.

 

Moneylife has been highlighting hundreds of cases of stock manipulation and insider trading. Yet, SEBI do not have time to even look into these cases, forget about investigating such matters on its own or punishing those responsible for it. It is no secret that Indian stock markets are hotbeds of manipulation. Promoters and operators are having a field day even as exchanges and the market regulator sit idle.

 

In some cases, the Exchanges seem to deliberately turn a blind eye. In others, the regulator seems to be helping the process by handling repeated offences with kid gloves. The maximum instances of manipulation are in smaller stocks, the kind that fly below the radar. Most of these are listed on the BSE. This does not mean that the National Stock Exchange (NSE) is free from it; there a bigger game is played—in the way stocks for the futures & options (F&O) are selected and then driven up and down through false information, rumours and the like. Together, these cases make you wonder how fair the stock prices are in Indian markets.

 

Take for example, in March 2014, Moneylife published a report about possible insider trading in AstraZeneca Pharma India Ltd, a day before the company's parent decided to delist the company. The sudden unusual rise in its turnover during three trading days, 28th February, 3-4th March 2014 appeared fishy. The stock rose by Rs77.75 a day before its public announcement and just the day after, it fell by Rs107.40. The suspicious spurt in volumes and price in this company required an investigation by the market regulator. But then while insider trading is rife in India, SEBI rarely acts, despite having spent Rs40 odd crore in sophisticated inter-market surveillance system.

 

Other example is when NR Narayana Murthy re-joined Infosys in 2013. On 1 June 2013, the company made the announcement. However, just a day before, i.e. on 31st May, Infosys scrip rose by 3.32% on the BSE, while the benchmark Sensex was down 455 points. Even its peer group companies like Tata Consultancy Services (TCS) and HCL Technologies ended 31 May 2013 flat. After reports from Moneylife and other media, SEBI sought clarifications from Infosys regarding the company's board meeting held on 1 June 2013 in which Narayana Murthy was re-appointed as its executive chairman.

 

In another example of possible insider trading, over six trading days, prior to the announcement of its acquisition by Pharmaceutical Industries Ltd (Sun Pharma) in $4 billion deal, Ranbaxy Laboratories Ltd shares rallied 34%. The deal was announced on 7 April 2014. Ranbaxy shares rose by as much as Rs116 (34%) in days before its made public announcement, a huge rise of 8.18% happening on the trading day before the actual announcement! Again, interestingly, neither the overall market (Sensex) no other pharma company stocks were rallying. It was only Ranbaxy that was shooting up, based on no news that could be related to the company. Again all this required investigation from the market regulator, but none happened.

 

Moneylife had written about suspicious trading activities in the AstraZeneca Pharma, LIC Housing Finance and Bajaj Corporation to name a few. There has been no action by SEBI.

 

Now, let’s see stock manipulation in smaller companies. Prism Informatics was known as Akruti Holdings in 2010 and is supposed to be engaged in software development. At that time, the stock had been hitting the upper circuit with just one or two trades! It zoomed up 29,348%, in just a matter of two years, all the way from a low of Rs0.29 on 15 September 2009 to a high of Rs85.4 on 22 September 2011, on a handful of trades. Volumes picked up only when the share price started to fall. It has fallen by 63% since. Who can make sense of this rollercoaster ride?

 

Changing the company name is a common practice to fool minority shareholders and to disguise past transgressions. Out of City Travel Solutions was Tilak Finance. The company was also suspended for non-compliance with listi ng norms. However, the suspension was soon revoked. The share price ballooned by 2268%—from Rs2.20 in July 2010 to Rs52.10 on January 2012.

 

Monotype India Ltd, supposedly into printing machines and allied equipment, was suspended from trading on the BSE in 2007 for non-compliance with listing agreement. However, it got its suspension revoked in April 2010. According to the document submitted to the BSE by the company, its printing operations have been suspended. After revocation, the company had violated SEBI’s SAST regulations and got away with an adjudication order of Rs1.50 lakh passed in July 2011. Despite such a host of violations and irregularities, the company merrily continues to be listed. Obviously, a lot of people are interested in the stock being listed because one can manipulate such stocks at will. Monotype India’s share price ballooned from a low of Rs5.05 to a high of Rs211.9, a gigantic 4096% move, over just one year— from March 2011 to June 2012. This is a company with no revenues whatsoever; which has been suspended in the past and, yet, whose stock is freely manipulated.

 

If you think SEBI is out to protect you against habitual offenders and the stock exchanges are there to monitor listed companies, perish the thought. The regulator’s job is to ensure a level playing field for companies and investors alike and provide a safe environment for investors. Unfortunately, often, this is not the case. In all these examples, the market regulator and the stock exchanges could have acted on their own because they have a whole department that is supposed to monitor suspicious price movements. But, they have not bothered.

 

Rampant Manipulation of Small Stocks    

The bigger scandal in smaller companies with poor fundamentals, which are going up 10-100. Prism Informatics was known as Akruti Holdings in 2010 and is supposed to be engaged in software development. At that time, the stock had been hitting the upper circuit with just one or two trades! It zoomed up 29,348%, in just a matter of two years, all the way from a low of Rs0.29 on 15 September 2009 to a high of Rs85.4 on 22 September 2011, on a handful of trades. Volumes picked up only when the share price started to fall. It has fallen by 63% since. Who can make sense of this rollercoaster ride?

Changing the company name is a common practice to fool minority shareholders and to disguise past transgressions. Out of City Travel Solutions was Tilak Finance. The company was also suspended for non-compliance with listing norms. However, the suspension was soon revoked. The share price ballooned by 2268%—from Rs2.20 in July 2010 to Rs52.10 on January 2012.

Monotype India Ltd, supposedly into printing machines and allied equipment, was suspended from trading on the BSE in 2007 for non-compliance with listing agreement. However, it got its suspension revoked in April 2010. According to the document submitted to the BSE by the company, its printing operations have been suspended. After revocation, the company had violated SEBI’s SAST regulations and got away with an adjudication order of Rs1.50 lakh passed in July 2011. Despite such a host of violations and irregularities, the company merrily continues to be listed. Obviously, a lot of people are interested in the stock being listed because one can manipulate such stocks at will. Monotype India’s share price ballooned from a low of Rs5.05 to a high of Rs211.9, a gigantic 4096% move, over just one year— from March 2011 to June 2012. This is a company with no revenues whatsoever; which has been suspended in the past and, yet, whose stock is freely manipulated.

Stock rigging is not the only evidence of poor monitoring by SEBI. Companies often get away with blue murder, leaving shareholders in the lurch. Consider Geodesic Ltd, a sham internet software and service provider, that had run up liabilities of more than Rs1,200 crore and defaulted on payment of its Foreign Currency Convertible Bonds (FCCB) and loans. SEBI never took any action (http://www.moneylife.in/article/sebi-asleep-over-geodesic-scam/36523.html ) against Geodesic and finally the Bombay High Court issued a winding up order against the company (http://www.moneylife.in/article/geodesic-gets-winding-up-order-from-bombay-hc/38398.html ). Following orders from the High Court, the Registrar of Companies (RoC), Maharashtra, appointed an official liquidator to wind up Geodesic.

Do check out the Unquoted section of the magazine and website (http://www.moneylife.in/investing/unquoted ). You will be alarmed and shocked to see the ease with which price manipulation goes on in capital markets.

If you think SEBI is out to protect you against habitual offenders and the stock exchanges are there to monitor listed companies, perish the thought.  The regulator’s job is to ensure a level playing field for companies and investors alike and provide a safe environment for investors. Unfortunately, often, this is not the case. In all these examples, the market regulator and the stock exchanges could have acted on their own because they have a whole department that is supposed to monitor suspicious price movements. However, they have not bothered.

What is galling and equally scandalous is the fact that tens of crore have been spent by SEBI on a fancy Inter-Market Surveillance System (IMSS) to catch stock manipulators. In August 2014, SEBI Board discussed a report on all actions taken by the market regulator, as a result of its market surveillance.

This is the same SEBI, which last year in June, declined to provide information on its real time market surveillance system (http://www.moneylife.in/article/sebi-says-dont-have-info-on-surveillance-system-and-prosecution/33071.html ). Moneylife had filed an application under the Right to Information (RTI) Act on 9 April 2013, requesting information on SEBI’s surveillance statistics and had asked SEBI to disclose the number of suspicious cases its sophisticated Integrated Market Surveillance System (IMSS) and Data Warehousing Business Intelligence System (DWBIS) had detected till 31 March 2013.

In its reply, the SEBI said, “It is informed that the information sought by you is not available with the concerned department of SEBI.” This was impossible, because if the surveillance department did not have such information, then who did? Who was really in charge of monitoring the data captured by the surveillance department?

It must be noted here, that SEBI had spent a whopping Rs50 crore in installing the so called “state-of-the-art” surveillance systems: IMSS and the more modern DWBIS.

Coming back to SEBI's surveillance system, Moneylife had found out that 48 staff members are posted in the Integrated Surveillance Department (ISD) of SEBI, which houses the IMSS and DWBIS system, as of 31 March 2013. The IMSS contract value was found out to be Rs20.55 crore, out of which Rs6.52 crore went towards “capital expenditure” between 2007 and 2010. HCL Technologies was the vendor.

Then SEBI adopted another system known as DWBIS, which came into existence from 2010 onwards, and the contract value was found to be Rs34.38 crore and Tata Consultancy Service (TCS) is the new vendor. Out of this amount, over Rs11 crore has gone towards “capital expenditure” in the last two years alone. This is collectively over Rs50 crore of taxpayers’ money.

This is a lot of taxpayers’ money and nobody knows if SEBI is truly looking at cases triggered by the systems, if at all, let alone punishing offenders and compensating minority shareholders. Nobody knows how effective SEBI’s surveillance system is either.

User

COMMENTS

Dayananda Kamath k

2 years ago

Now sebi has been given the power to regulate ponzi schemes. but how effective it can be. because of conflict of interest. unit 64 was the biggest ponzi scheme run by uti a govt undertaking, may be that is the reason there are various ponzi schemes prevailing in the country. now almost all sebi heads were from uti including the present one. will they not hesitate to initiate action when in the past they have done the similar transactions in uti.

Raghunathan Batherikkal

2 years ago

If SEBI is under FINANCE MINISTRY I plead Mr. Jaitley to throw this SEBI in the fathom of Pacific ocean with its boss and reconstitute a new mechanism with sharp tooth and nail than this scare crow.

Dayananda Kamath k

2 years ago

sebi can not solve simple complaints effectively then how can it resolve the complex cases. many a brokers do not transfer the shares to demat when corporate action of rights issue is there or demerger so that you loose right and unlisted demerged company will not be reflected in any statements and they do not transfer it to demat after crediting as it is barred by peculiar rule of sebi.
a company has termed right issue applications in two folios as multiple application and rejected. a company has rejected rights even though it has reached them well in advance as per postal proof but denied as late receipt. and complaint to sebi is of no use as any vague reply or seeking information by company copy marked to them is considered as closure of issue. so what is their credibility in complex cases.

Mahesh S Bhatt

2 years ago

RIL merger with RPL created undue gains to comapny worth 10000 crores/Essar Oil delisting is another case Small investors getting raw deal.ADAG RPower was a shocker where IPO SEBI approved worth Rs 429/ & stock opened at 100 plus forgot the rate made windfall 81000 crores.Later gave bonus but still shareholders are suffering.

Challenge is who will bell the big cats.

Like USA had Rajat Gupta/Ratnaraman/Madoof sentenced we should get stricter norms.

Today retail investor is less than 3% & FII's are big manipulators.

Main Street Economy is growing at 3-5 % but Stocks are growing at 100% its visible manipulation at global levels but how do we correct?Experts should find the way.or they say Stock Investments are dead only speculations live & men get buried.

Read Values for Wealth at http://www.youtube.com/user/kirtidabhatt & reset the systems before we head for another corrections.

Mahesh

India to look into Nokia's Chennai plant suspension issue

Nokia was forced to keep its Chennai unit out of a $7.5 billion deal for sale of its handset business to Microsoft due to a tax dispute with Indian authorities

 

The Indian government on Wednesday said it will look into the issue of Nokia announcing suspension of its Chennai mobile plant operations and make efforts to ensure that such incidents do not occur again.

 

“We will certainly see how best (such) matter doesn’t occur again and we will encourage ‘Make In India’ campaign,” Commerce and Industry Minister Nirmala Sitharaman said.

 

Sitharaman, who is also Minister of State for Finance and Corporate Affairs, was responding to queries on Nokia announcing suspension of its plant and whether it will affect the government’s recently launched ‘Make In India’ campaign.

 

“This is an issue specifically related to a particular company and there is an issue on that. We are seized of the matter. We will look at it,” she said.

 

On Tuesday, telecom handset maker Nokia Corp announced suspension of operations at its Chennai mobile handset plant from 1st November after Microsoft terminated an agreement to buy mobiles from the unit.

 

The company had said that the asset freeze imposed by the tax department prevents Nokia from exploring potential opportunities for the transfer of the factory to a successor to support the long-term viability of the established, fully functional electronics manufacturing ecosystem.

 

The Finnish handset maker was forced to keep the factory out of a $7.5 billion deal for sale of its handset business to Microsoft Corp, due to tax dispute with Indian authorities.

 

Tax authorities allege that Nokia avoided paying taxes by wrongfully claiming an exemption on software exports. Nokia has challenged the claims of the tax department in courts.

 

Nokia started manufacturing at Chennai plant in January 2006 and exported products to overseas markets, including the Middle East and Africa, Asia, Australia and New Zealand.

 

According to Nokia India Employees Union, there are about 900 employees still working at the factory. Following the Nokia-Microsoft deal, the voluntary retirement scheme was offered for employees and 5,700 of them opted for it, from the total of 6,600.

User

Flipkart's Big Billion Day: Govt to look in to complaints

Minister of State for Finance and Corporate Affairs Nirmala Sitharaman said the government has received many complaints about massive discount from Flipkart and is looking into the matter

 

After receiving "many complaints" from traders on Flipkart's massive discount sale, the Indian government on Wednesday said it will look into the concerns and take a call on whether more clarity is required on e-commerce retail business.

 

Flipkart's 'Big Billion Day' sale on Monday, that offered steep discounts on various products, has raised concerns among small and big traders that such campaigns would badly affect players in the traditional retail market.

 

"We have received many inputs. Lot of concerns have been expressed. We will look into it," Commerce and Industry Minister Nirmala Sitharaman told reporters.

 

When asked whether the government is considering any particular policy for e-commerce retailing, she said the matter would be looked into.

 

"Now there are many complaints. We will study the matter... Whether there is a need for a separate policy or some kind of clarification is needed, we will make it clear soon," Sitharaman, who is also the Minister of State for Finance and Corporate Affairs, said.

 

In recent times, many e-commerce portals have been coming out with steep discount sales.

 

Flipkart has said that its 'Big Billion Day' sale saw 1.5 million people shopping at its portal. It also claimed that products worth over Rs600 crore were sold in just 10 hours under the scheme.

 

Earlier this week, Confederation of All India Traders (CAIT) had demanded the Commerce and Industry Ministry take steps to monitor and regulate online businesses.

 

The CAIT has also sought a probe into the business model and trade practices of e-commerce companies to find out how they are offering huge discounts during the ongoing festive season.

 

To a query related to Foreign Trade Policy (FTP) announcement, Sitharaman said that it will come "soon". "The new policy would be different from the previous ones. It will focus on lot many things," she said.

 

FTP deals with matters related to exports and imports.

User

COMMENTS

Divya Jayachandran

2 years ago

Retailing is no rocket science. There are manufacurers and there are end consumers, and a set of intermediaries who link them. The more intermediaries you have between manufacturer and end consumer, the more the price end consumer has to pay for the same product, obviously capped by MRP. Competition is good, as there is a great opportunity to make your processes lean and clean. Government should be looking at helping brick & mortar stores to bring down expenses so that the prices can be less and a fair ground for competition is set.

Abhijit Gosavi

2 years ago

One of the players in the game is developing an innovative pricing strategy, and the other players are seeing reduced profit margins. Game theory and tons of empirical evidence together suggest that competition forces all players to revisit their business models, becoming more efficient in the process (the equilibrium reached may not be perfect but is far superior to that produced by govt. regulations). In the long run, this only helps the consumer and the economy at large.

Is that so hard to understand? It's hard to believe that the government is even *considering* interference. Moneylife deserves kudos for highlighting this immediately.

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