July 17, 2000

Bombay Dyeing problem

A few months ago, we reported that Bombay Dyeing had doctored documents to short circuit the Commercial Paper (CP) issuance procedures and later replaced them with genuine papers. The Reserve Bank maintained a thundering silence on the issue, but set up a committee to go into the issuance of CPs. The committee has now proposed several changes including the delinking of CP issuance from working capital limits of a company. It recommends that companies which violate CP guidelines should be debarred from issuing CPs for a year. As for banks, which are the Issuing and Paying Agents (IPAs), the committee claims that the Indian Banks Association’s flexible guidelines are no substitute for specific ones issued by the central bank. It seeks to fix the responsibility of IPAs by asking them to certify that CP documents are in order and specifies strong punishment for violation of procedures. Since the committee confirms the irregularities identified by the RBI’s Department of supervision then should the RBI not initiate some punitive action against the company? If indeed it has punished or reprimanded Bombay Dyeing or the banks involved, it is being kept a well guarded secret.

Now badla=ALBM

SEBI Chairman D R Mehta finally had his way. He obliged the Bombay Stock Exchange (BSE) by eliminating what he claimed was “risk-arbitrage” opportunities between the BSE and the National Stock Exchange (NSE). After a long day when SEBI officials were closeted with a couple of BSE officials, it decided to slap additional margins on ALBM. But the loser is probably the Calcutta Stock Exchange (CSE). The CSE, long known for the large volumes of unofficial badla came in for a drubbing from the Chairman when it was discovered that its carry-forward margins were a third of those imposed by the BSE and now part of the ALBM — talk about risk arbitrage. We wonder why SEBI, which is so agitated about ‘‘inadequate risk-containment measures’’ on the part of the NSE is relatively lenient with the CSE. Incidentally, now that the NSE’s Automated Lending and Borrowing Mechanism (ALBM) has been made exactly equal to the BSE’s badla, all additional margins and restrictions imposed by NSE on the ALBM would have to go. Is it not curious that some newspapers went ahead and reported that NSE’s additional conditions/margins on ALBM would have to stay? Was this done to destabilise the market, or is it only a reflection of the garbled statements put out by the regulator?

The global tie-ups

On the eve of the Prime Minister’s visit, the Bombay Stock Exchange (BSE) announced grand plans for global tie-ups with the New York Stock Exchange (NYSE) and the NASDAQ. It is indeed wonderful that the oldest stock exchange, which was known for fighting modernisation, is now aiming to be at the forefront of a grand global alliance. What the BSE forgot to mention is that NYSE has extended the same invitation to the National Stock Exchange, which has also agreed to be part of the Global Equity Markets Project. This is a five-year programme which seeks to link all major exchanges in order to create a 24-hour trading possibility If the NSE has not been broadcasting the invitation, it is because without capital account convertibility, Indian markets have no choice but to remain outside the global loop. On the other hand, there is no harm in hoping that currency will become fully convertible in five years and to put in place the required technology and systems.

On exit route

Why would people want to leave the yuppiest institution which pays the highest salaries, gives stock options and hefty bonuses, whose working conditions include the plushest chrome and glass offices, complete with swimming pool and health club. For some time the frequent resignations were explained away as being a result of the dotcom boom. Not anymore. The executives are seeking jobs in other finance companies but do not dare to tell the management for fear of the telephone calls that are usually made to stymie their future assignments.

 

Updated weekly.

The author's e-mail address is: suchetadalal@yahoo.com

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