MUMBAI, FEB 19In spite of tall claims by the regulators and the government, Indian stockmarkets are still controlled by manipulators. A recent study by the NationalStock Exchange (NSE) says the market remains ``plagued during certainperiods by high volatility and price manipulations''. ``Many companies are closely held and not listed on stock exchanges. Asmall percentage of listed scrips are traded. Floating stock in the marketis not large, while the market is dominated by FIs, FIIs and a group ofbulls and bears, some of whom are primarily interested in unhealthyspeculation rather than healthy trading,'' the NSE study said. Large sale or purchase by some of them, at times in concert, does injectthe market with a speculative overtone, as evidenced by manifold rise inprices of BPL, Videocon, Pentafour, Sterlite etc during May-June 1998. Ofthe 55 cases taken up by SEBI for investigation during 1998-99, 40 relatedto price manipulation and price rigging. Says the study, ``The market remains plagued during certain periods by highvolatility and price manipulations. It is reflected by the ratio of High toLow during a period. A ratio of 2-3 during a year is observed in a largenumber of securities indicating that the share prices rise to more thandouble or fall to less than half during a year. A ratio as high as 7 wasobserved even in index scrips (although IT scrips) during 1998-99. Such highfluctuations point at divergence of prices from the fundamentals.'' In a recent survey conducted by the Society for Capital Market Research andDevelopment among a cross-section of companies, as high as 83 per cent ofthe responding managements, cutting across all size and age groups ofcompanies, answered `yes' to a question whether the Indian equities marketis ``frequently manipulated despite SEBI's regulations''. Nearly 86 per centof the respondents agreed that Indian market is ``more speculation-orientedthan investment-oriented'' and about 62 per cent felt that the market is``excessively volatile''. ``Incidence of price manipulation can be traced to large-scale unhealthyspeculative trades. The extent of speculation can be gauged by thedeliveries at the end of settlement. During 1998-99, delivery took place inrespect of 13% of trades by value. The rest were squared up. It may be notedthat delivery based trades are generally done by the investors whilenon-delivery based trades by the speculators including brokers,'' said `TheIndian Securities Market - A Review' brought out by the NSE. In advanced countries, transactions on customers' account constitute over70% of trades while non-members account for less than 30%. Though this isnot strictly comparable, it is an indication of the extent of speculation.Factors responsible for the large scale aggressive speculation in Indianmarket are: * squaring up facility in the settlement system * long settlement period * carry forward facility * different settlement cycles on different stock exchanges and * low margin requirement. For example, an operator may do any amount of short selling or accumulate along position and square up the trades before the end of the settlementperiod. ``Even if he is required to give delivery, he has the option tocarry forward to next settlement period or shift position from one exchangeto another,'' it said. The NSE study said the introduction of on-line trading has also resulted inthe sharp increase in speculative transactions. Since the orders areexecuted at quick pace, a large number of traders indulge in short termspeculation in the active scrips. Some speculative demand many assist theliquidity and efficiency of market, but too much of speculation conflictswith allocational efficiency. If speculation is to be harnessed, thesettlement period should be shortened by shifting to rolling settlement.
