Why are exchanges regulating stocks more than required under the grab of surveillance measures..?
When Akruti rose 150% in 5 days the said stocks was arbitrarily transferred to trade to trade category whereas a similar rise was seen in RIIL which rose by 200% in 3 sessions yet no punitive measures were taken by exchanges which suggest that Exchanges work in an environment where their actions are controlled instead of leaving everything to market price discovery mechanism.
It is widely accepted fact globally the derivatives segments generally have the market discovery price mechanism where there are no price bands. This is not different in India. This has though created question on the integrity of the functioning of the exchanges in India.
On 21st Jan 2008 and 22nd Jan 2008 market collapsed to hit lower circuits where all the scrips were down by over 60 pc yet exchanges said that they believe in market discovery price mechanism and no changes were made in the price bands neither any scrips were transferred to trade to trade segment. In Oct 2008 again market the deck with global melt down the theory of market discovery mechanism was maintained.
On the contrary, in B gr where the share pries fell like pack of card such measures were not introduced by exchanges even though the stocks were hitting lower circuits every day denying the exit to the stuck investors which were against the principles of market discovery price mechanism.
Another question which is arises on the functioning of the exchanges is that whether their control and lack of initiative to act faster has created no exit kind of situation which has in some way helped market manipulators.
The Jan 21st and 22nd Jan 2008 crash had resulted in biggest ever payment crisis after May 2006 which has resulted into over 1000 pending cases of disputes among brokers and clients where brokers have sold shares of clients without their information and permission.
Had Exchanges followed the market driven price discovery mechanism at least on special occasion in A gr and B gr shares then probably the payment crisis could have been averted. e g IFCI crashed from Rs 79.80 on 21 st Jan to a low of 57 that was 30% crash and RNRL was Rs 205 to test low of Rs 125 whereas Videocon was crashed from Rs 581 to 567.60 and thereafter it was kept on hitting lower circuits till 13th feb 2008 to settle at 352.90 a drop of 60%.
It could have been possible for millions of investors to raise required cash margin by selling mid caps and small caps on these days and pay to the exchanges to avert crisis of payment in derivatives segment. However, this could have happened only if the circuit filters were changed to average drop in A gr shares say 30% then probably market could have stabilised without much pain and payment crisis.
May be the correction could have stopped at 30% itself in A gr as well as B gr because of the balancing act. To express precisely is that when the exit is provided in A gr and B gr shares by removing the circuit barriers in line with derivatives limits on the day of vertical crash, investors could have generated some cash to pay of the mark the market in derivative segment by selling shares in A gr and B gr which was prevented by exchanges by their lack of action in this regard.
The only difference is that stocks in both the segment have lost equal valuations but in the former case it was in just 5 hours whereas in later case in almost 20 days.
Why is so…?
The exchanges have a belief that the mid caps and small caps are not widely distributed and manipulation is possible in such cases whereas the fact always remain that most of the manipulation happens in derivative segments. Satyam, Core Projects, Educom, Akruti, Suzlon, Unitech all were in derivatives and most of the promoters have complained to market regulators about the price manipulations though market regulators were failed to nail the culprits even in a single case so far.
Why is that exchanges belief that manipulation happens only when market and prices goes up…?
By and large all surveillance measures are introduced when the share prices are rising in B gr and no such actions are taken when the share prices are falling.
This gives rise to doubt about the integrity of the stock exchanges in managing the affairs of the stock prices.
It is known fact that the exchanges official have dubious track record in helping operators in changing circuit limits, moving from one segment to another, removing from trade to trade and transferring to normal segment all that happens for some consideration though there are no evidences. Had it not been the case, the guidelines of such actions could have been made public and the rules of surveillance could have made applicable to all companies in most open environment. The discrepancy is noticed no of times yet there is no body coming forward to speak against the exchanges as they have a threat that they will create problems for the companies.
It is on record that investors have lost heavily in new IPO price rigging cases which have till date not been resolved. The market regulator have slapped monetary penalties and settled all such price rigging cases.
The frequent transfer of cos from normal to trade to trade category which is generally a deserted category due to margin issues have killed the spirit of the Indian capital markets. Such attitude is set to damage the growth of capital market and resulted into 37% scrips of NSE into illiquid scrips.
In fact, this is more helping to manipulators as they can rig the prices in trade to trade without public participation for couple of months where these scrips can be moved to normal category and once again the price rigging and distribution becomes the order of the day.
Can India dream to become one of the best regulated markets in the world…? Is the regulator doing enough to protect the interest of all the shareholders..? Can we avoid another Satyam which was in derivatives …?
There is lot more the regulator can do instead of allowing exchanges to manage the affairs arbitrarily under guise of surveillance. They need to resolve the physical settlement in derivatives, they need to address the IPO scams, they need to address some regulations where the promoters holding stake of 5% and below can go burst on any given day. They need to protect the interest of the GOI the single largest shareholder and our DII which is again the back bone of the system. They can create most advance automatic mechanism to adjust derivatives lots on vallan day and avoid the payment crisis by taking liberal views on the day of vertical crash in the markets and change the circuit filters. There has to be automatic change is the size of F & O lots once the band price changes due to rise share prices. Essar Oil share price doubled whereas the lot size remains same. Any scrip coming in to derivative and going out of derivative segment must be given a time frame of at least 6 months including the 3 months open series.
If the theory of market discovery price mechanism is found correct and holding tight water for derivative segment the same should be allowed to B gr share also.
The movement from normal category to trade to trade should be a periodical affair instead of the wish list control of exchange. There has be to uniform rules for all the scrips say 100% rise in share price instead of arbitrary powers to exchanges which are rather used with malicious motives.
Post a Comment