Stock exchanges arbitrarily shifting scrips to specified group

DSE has recently kicked-off carryforward at thebourse. "A company in the specified group having a narrow capital base, is easy target for price manipulation… As the trade guarantee fund guarantees all transactions including those in the badla segment, it is essential that only such scrips which meet the above criteria should be in the specified group," he said.

Sodhi goes on to say that under the current system a broker is permitted to carryforward position upto Rs 20 crore, therefore he can effectively borrow Rs 18 crore on payment of carryforward margin of 10 per cent. "Even if 20 brokers in a stock exchange touch the upper ceiling there would be credit risk of Rs 360 crore in the system. Rough and ready solution could be to either decrease the upper limit of Rs 20 crore or increase margins. Credit rating of brokers, linking the ceiling with networth of brokers and proper credit appraisal mechanism at the stock exchange level are the basic measures that need to be addressed,” Sodhi said.

“At present the stock exchanges monitor broker levelpositions only. For instance if one client of a broker has a buy position of Rs one crore in SBI and another one has equivalent sell position in SBI, the risk perceived at the stock exchange level is zero and the broker is not required to pay any margin. This is extremely risky because either of his clients or both of them could fail to honour their commitments. Therefore, for trades at least in the specified group, margins as well as other risk management measures need to be applied at the client level,” he said. Sodhi has also stated that volatility is likely to increase rather than contained through the recent volatility margins announced by Sebi.

“Earlier the maximum price movement in a scrip could be 25 per cent during a week. Now during the week, maximum movement could be 46 per cent on the plus side and 33 per cent on the negative side. A market manipulator now has the advantage of shorter time frame to rig up the price and his requirement of funds for this purpose would also be smaller as theentire operation can be carried out in a shorter period,” Sodhi said.

“The basic idea of identifying volatile scrips was that only a few scrips, which are way out of the market trend, could be identified and a close watch kept over them. During the last week there were 35-40 scrips which attracted this margin. The very objective of imposing this margin appears to have been diluted,” he said. Sodhi has also said that the current practice at BSE and DSE to hand over the scrips to the vyaj badla financier during the no-delivery period for transfer of shares in his name is risky and againSebi’s instructions on the subject.