MUMBAI, July 12: The National Stock Exchange (NSE) was considered as a safe exchange with a stringent monitoring and vigilance mechanism. This reputation suffered a severe setback as rogue traders recently misused the system and led this ``modern'' stock exchange to a major payment crisis. The flaws in the operations of the exchanges despite the formation of the regulator, Securities and Exchange Board of India clearly show that much leaves to be desired when it comes to running the exchanges.At least half-a-dozen brokers on both NSE and the Bombay Stock Exchange (BSE) faced severe problems. The exact amount of default is still not known but runs into several crores. This has happened after exchanges introduced online computer trading, imposed margins and circuit breakers and set up special vigilance cells. SEBI also has a vigilance and investigation wing which monitors the functioning of the exchanges. Still stock exchanges are often hit by their own regulatory failures. One can blame the BSE as itis dominated by brokers half its governing board comprises broker-directors.There have been several instances when the BSE board has taken measures to protect some lobbies at the cost of investors. But the NSE is run by a professional management with brokers not having any role in the affairs of the exchange. There is no carry-forward trading (badla) on the NSE. Despite this, NSE brokers who strictly follow the weekly settlement faced problems.``Brokers alone cannot be blamed. Exchange officials need to do their job seriously,'' said a Finance Ministry official. The fact that both NSE and BSE switched off the trading terminals of half-a-dozen brokers in the recent payment crisis indicates that the going was tough this time. It was an open secret that excessive speculation was rampant on both the exchanges.Sterlite, BPL and Videocon soared to dizzy heights as Harshad Mehta's brokers used both the exchanges for rigging. This clearly shows that both the exchanges lack proper systems for to capturethe market trend and get the feel of the dynamics of the market place. The mess in the BSE's clearing house is another instance of mismanagement. It is now abundantly clear that the Rs 114 crore shortfall in the delivery of shares to custodians (of buyers) by BoI Shareholding, the clearing house of the BSE, is a case of gross inefficiency. There was chaos at the clearing house recently due to huge gaps in the number of shares delivered to custodians despite the latter having made payments for the same.Other exchanges are not lagging behind. The SEBI inspection report on the Calcutta Stock Exchange (CSE) had recently criticised CSE for not maintaining a proper surveillance system. This report had said the staff of the exchange was not equipped to understand manipulation in the market. This is the case with other stock exchanges also. ``Stock exchanges have become purely trading markets breeding and spreading casino culture in the country,'' said G S Patel, former chairman of UTI. The BSE inspection reportwhich was released last month also revealed several lapses in the system.The SEBI report says that several BSE brokers failed in segregating cash and badla transactions as required. It also lists several lapses like flaws in capital adequacy of brokers, violation of trading limits and carrying forward transactions even beyond the 90-day limit. The NSE inspection report which is yet to come out may also contain several skeletons.``If one goes by the number of regulatory lapses taking place on the exchanges, there will be more scandals and scams,'' said a market expert. Patel says investors have deserted the markets ``as the root causes of the problems faced by the exchanges such as excessive short-term speculation, extensive price rigging, extreme volatile conditions, rampant insider trading, front-running and shifting of speculative positions by operators from one market to another'' have not been rectified. Entry of FIIs, macro-economic concerns and political uncertainty havealso added a new dimensionto the problems of volatility and uncertainty.While one section blames the SEBI for taking things lightly, another blames the NSE and BSE management for the mess. Instead of providing more value-added services to the investors, NSE and BSE were engaged in competition to push up volumes. When NSE expanded its business and claimed the number one position, BSE followed and pushed up volumes through badla and expansion of trading and A group shares. Simultaneously, lapses also took place and investors are paying the price.
