Dalal Street sees crash and rescue

As expected, the widely tracked Sensex crashed by 491 points in the first seven minutes of trading as investors sold across the board on worries about the impact of ban.

The regulator immediately came out with a clarification saying that brokers 8212; like Indiabulls8212; who were banned from the market can do business for clients and that only proprietary trading trading by brokers themselves is banned.

This means investors will be able to use the trading platform of Indiabulls Securities, which has 250,000 clients and handles Rs 2,000 crore worth of their money.

On Thursday, when the Sebi cracked down on 24 market operators, 12 depository participants and 85 IPO financiers, it did not mention that only proprietary trading is banned.

The grand finale was later in the evening, minutes before the market closed for trading at 3.30 pm. In a move that surprised many market experts, Sebi announced that it has deferred its order banning Indiabulls Securities from participating in the capital market.

8220;The order would be kept in abeyance, pending verification of clients,8217;8217; Sebi said.

When asked why, Sebi chairman M Damodaran said, 8216;8216;I am under no pressure, whatsoever.8217;8217; According to him, the interim order allowed for post-decisional hearing within 15 days.

8216;8216;Indiabulls officials came to the Sebi office in the morning. After hearing their defence, Sebi had two options8212;either to let its interim order run for some time, or keep it in abeyance till their claims of Indiabulls were verified and the final order passed,8217;8217; he said.

Sameer Gehlaut, chairman, Indiabulls Securities, visited the Sebi headquarters and clarified to Sebi whole-time director G Anantharaman about the company8217;s position. He said 559 account holders transferred 13,939 TCS shares to Indiabulls for trading purposes towards meeting their margin requirements as per the stock exchange rules and regulations.

Indiabulls accepted these shares in its client margin account in its capacity as a broker and for the limited purpose of facilitating the client transactions. As per the rules, a broker cannot trade on behalf of a client without receiving margin from the client either in the form of cash or shares, the company said.

On sale of the TCS shares by the 559 clients, the proceeds of the sales were transferred by Indiabulls to individual client accounts. 8216;8216;Indiabulls had absolutely no role in either the IPO application of these 559 clients or any economic interest or any other interest whatsoever in the sale proceeds arising out of the sale of 13,939 shares or any financing of any of the IPO applications of the 559 clients,8217;8217; the company said.

Experts are not amused by Sebi8217;s flip-flop. 8216;8216;Sebi should have made a thorough report instead of giving many avoidable clarifications later. First of all, Sebi erred by not giving a proper clarification on proprietary trading on Thursday. If Indiabulls has not done any mischief, why was its name was included in the banned list on Thursday?8217;8217; asked a leading broker who preferred anonymity.

Clearly, the final chapter on IPO scam has not been written yet. 8216;8216;Nothing investigation is over. If new facts emerge, we are open to investigation,8217;8217; Damodaran said. 8216;8216;Sebi will have no hesitation in hearing petitions from other aggrieved parties, if they approach the market regulator.8217;8217;

Meanwhile, the Karvy group8212;which is at the receiving end of the Sebi action8212; termed the ban as 8216;8216;very harsh8217;8217; and said it would file its objections. The company claimed that it was only a victim of a fraud purported by some, who projected themselves as sub-brokers in the primary market with a large customer base.

On the other hand, investors who hold demat accounts with Karvy and Pratik are a worried lot as they will have to shift their accounts in the next 15 days. Karvy has a huge demat base of 7.3 lakh.

Analysts said the Sebi move to clean up the IPO tables will not affect the IPO market. In 2005, IPOs totalled 15 billion, and offerings worth 20 billion are expected to hit the market in 2006. 8216;8216;This SEBI order will not affect the IPO plans of companies which have already planned to raise money,8217;8217; said an analyst at ICICI Securities.

Added Paresh Khandwala, managing director of Khandwala Securities Ltd: 8216;8216;The market recovered after SEBI8217;s clarification. It only shows the market has underlying strength.8217;8217;