Even as the SEBI has stepped up punitive actions against stockbrokers and market intermediaries, it is also back to filling vacancies at the very top to keep the flow of investigation orders going. SEBI has one Member Director retiring this month and another in approximately 12 months. Sources say that a race is already on for these posts and a set of probables have been identified. One of these is the former chief of a sister bank of the State Bank of India (SBI) and the other is reportedly from the Income Tax cadre. If these are indeed the names in the race, then SEBI will have a set of whole-time members who will spend a lot of time learning about the capital market and will be on their way out, just when they have got the hang of the market regulations.
Each time a leading investment bank has been involved in a large corporate deal, the announcement has been preceded by a massive run up in the stock prices of the listed company involved in the deal. In one case, says a source, an investment banker from the firm had predicted to him the precise point to which the stock would rally, well before a deal was announced. On another occasion, the management of the investment bank traced the leak to one of its employees and sacked him after reporting the matter to the regulator. Its transparency was appreciated and it got away without a scandal. But it has happened once again and this time, we hear that the regulator is not at all amused. Some say that the regulator is also examining compliance issues connected with a mutual fund, which is part of the same financial group.
On reading the bonus advertisement of Kolar Biotech, one investor decided to walk over to its published address at Dadar, Mumbai to get more details. To his horror there was no company at the address. Further inquiries about the company only drew a blank. Yet, Kolar Biotech’s advertisement reported a three-fold increase in turnover and net profit and big new investments in bio-informatics. Incidentally the company had changed its suffix to biotech from Informatics, probably to remain aligned with the latest market fancy. As for its registered office, the company informed the bourse that it has moved from Dadar to a new location at the Mumbai suburb of Goregaon. When we tried to call the two telephone numbers provided with the new office address, there was no response. This was the experience of several other investors who called us. Interestingly, a popular message board did carry warnings. One investor pointed out that the risk management committee of icicidirect.com had banned the scrip. Yet, it took almost three weeks for the regulatory action to kick-in. Investors say that this is neither the first nor the last time that investors will be duped by such tricks.
Even scandalous price manipulation tends to go unnoticed when it involves relatively unknown companies. Kolar Biotech is one such brazen example that had day-traders in a tizzy over the last few weeks. It began with a newspaper advertisement announcing a 2:1 bonus issue by the company on a book value of just Rs 3. The face value is now Rs 1 per share and its 52-week low price was 45 paise. Suddenly the scrip started running up volumes of several lakh shares everyday. Then followed an August 25 announcement that the board of directors had approved a GDR issue of Rs 50 crore at Rs 5 a share. Why would GDR investors pay Rs 5 for a scrip trading at Rs 2 plus even after it was pumped up through Internet message boards? Even publications that reported its plans didn’t ask any questions, and the scrip jumped 150 per cent with volumes going up to as much as 11 lakh shares. After nearly three weeks of hectic speculation, the BSE finally moved the scrip to the ‘‘Z’’ category and the stock dropped from over Rs 2 to around 77 paise on Friday. But check out what the more careful investors have to say.
Finance Ministry has temporarily stalled the RBI move to start screen-based trading in the debt market for banks and institutions through the Negotiated Dealing System (without the intermediation of debt market brokers). The ministry has demanded wider consultation on the RBI’s plans and asked why the Clearing Corp of India Ltd. (CCIL) cannot clear debt trades of the NSE. So far, the RBI has refused to budge from its plans; it has merely postponed the launch of screen-based trading from Sept 1 to 15. The outcome of this confrontation is being watched with interest and will send out powerful signals to bankers about whose clout is greater in the financial world.