BSE chief sacked over payment crisis

Parekh’s removal created a sensation on the stock exchange with the Sensex crashing 154 points in the early hours of trading before recovering partly to close the day with a net loss of 74 points. “I will appeal to the Appellate Authority in 3-4 days. SEBI has accused me of certain actions. These actions were carried out for the benefit of the investors and not for the benefit of a select group of brokers. Moreover, the entire incident happened eight months back. I fail to understand why they have now felt it urgent to move me out of office after such a long gap,” Parekh said.

SEBI has charged Parekh for his role in influencing the exchange administration and getting margins reduced, getting the trading system open beyond trading hours for select brokers and not having kept the governing board fully informed.

The SEBI has also banned Parekh from holding a post on the governing board of the exchange for a three-year period. However, the SEBI move — thefirst in the history of the Indian markets — to ease out Parekh has come too late as he is in any case stepping down from the presidentship of the exchange at the end of March on completion of his one-year term.

SEBI chairman D R Mehta issued the sack order of Parekh under the SEBI Act on Tuesday evening after finding Parekh’s reply to the show-cause notice `unsatisfactory’. The regulator had issued show-cause notices to the BSE top brass including Executive Director R C Mathur last month asking them to explain the reasons for the systemic breakdown at the exchange which had put the market to risk. The notice was issued after it was found that Parekh and other BSE officials failed to prevent build-up of unusually high positions which led to the payments crisis at the bourse in May/June last year.

It had also questioned the bail-out process which the stock exchange top brass had carried out following the surfacing of the crisis. This had included opening of the BSE trading system after the trading hoursand entering trades to benefit some brokers. BSE vice president Rajendra Banthia had earlier resigned in November last year after SEBI debarred his company from doing business. However, market circles are surprised that the SEBI has not taken any action against BSE executive director Mathur who is directly responsible for the running of the exchange on a day-to-day basis. “It will be interesting to know how the SEBI found Parekh’s explanation unsatisfactory and Mathur’s satisfactory,” they said.

It may be recalled that SEBI had ordered a detailed probe into the payment crisis late last year after a huge build-up of positions in three scrips — Sterlite Industries, BPL and Videocon International — had threatened the integrity of the markets. The bull run in these scrips was led by a group of brokers — including former vice president Bhanthia — and scam-accused Harshad Mehta. Share prices of these companies were rigged up by these brokers but later failed in meeting the payment obligations. When thepayment crisis surfaced, the market virtually collapsed by June 1998.

In the first phase of the probe, SEBI had indicted 8 brokers including Banthia’s Harvest Deal Securities for having allegedly acted in connivance with front companies of scam-accused Harshad Mehta to rig up the share prices. Some of these brokers had taken SEBI to court and a handful had even got a reprieve from the Mumbai High Court in the form of a stay on the suspension. The process of adjudication is currently on in the cases.

SEBI was also probing the role of stock exchange managements as well as of the promoters of the three companies in the payments crisis and the subsequent bail-out. It had finally issued show cause notices to BSE as an exchange and the president and executive director as individuals and the National Stock Exchange (NSE) as an exchange last month.

SEBI is currently finalising the third stage of investigation into the alleged role of the promoters of these three companies in the post-crisis bail out of thedefaulters. The promoters were allegedly hand-in-glove with the brokers in pushing up the prices initially and in bailing out the brokers thereafter.