Sebi sacks broker-directors of BSE

Sebi sacks broker-directors of BSE
ENS ECONOMIC BUREAU

MUMBAI, MAR 12: The Securities and Exchange Board of India (SEBI) has finally decided to act tough on erring stock exchange officials. In an unprecedented step, the market regulator on Monday virtually sacked all seven elected stock brokers on the governing board of the Bombay Stock Exchange (BSE) by ordering them not to act as directors until further notice.

As a result of the SEBI decision which is tantamount to superceding the board, former BSE president Anand Rathi, Deena A Mehta, who is the current acting president, Himanshu N Kaji, the honorary treasurer, Jayesh K Sheth, Kirit B Shah, Motilal Oswal and Niranjan Nanavati will be stripped off their powers as directors on the BSE board. The decision has been taken by Sebi under section 11B of the Sebi Act, which gives the regulator sweeping powers "in the interest of the investors and the orderly development of the capital market."

The market regulator has been more tough in the case of Anand Rathi, who resigned as the president last week following allegations that he leaked out price-sensitive information to others. Rathi and his concerns -- Anand Rathi Securities Pvt Ltd, Navratan Capital and Securities Pvt Ltd, Rathi Global Finance Ltd and Rathi Capital and Securities Pvt Ltd -- have been directed not to undertake any fresh business as a broker as well, until fresh Sebi orders in this regard.

Rathi, who was forced to resign as the president in the wake of the controversy over the taped conversations where he asked for information on specific stocks from the exchange's surveillance department, had continued as a director. But with Monday's order, Sebi has put paid to his plans of continuing on the board as well.

The other directors have been debarred since a number of them have been mentioned as having been with Rathi in the room when he made the controversial telephone call to the surveillance department in the afternoon of March 2, the day the BSE Sensex fell a huge 176 points on sustained bear hammering. Sebi is also probing the existence of a bear cartel in hammering down the market on that day.

The regulator is now expected to give these parties hearings on March 21 and 22, where Sebi chairman DR Mehta will personally hear them in a quasi-judicial role. The allegations also are that Rathi and his governing board colleagues collected the information from the surveillance wing and then used it to hammer the market further and make gains.

When asked to comment on this major step, Sebi chairman Mehta said: ``I have no comments to offer, since I would be hearing these cases in my capacity as Sebi chairman.'' The SEBI move means that the non-elected directors would now be running the BSE until further orders from Sebi. Sources said the non-elected directors would now probably elect someone from among themselves who would be acting as the president of the BSE.

Sebi, obviously, would also have a direct involvement in running the BSE, the decision of Monday almost bordering on the verge of a supercession of the BSE board. In the mid-nineties, after a Sebi probe into nationwide price rigging, Sebi had ordered the supercession of the board of the Pune Stock Exchange.

The SEBI decision is expected to send shockwaves in the markets on Tuesday, and top BSE officials are already believed to have told Sebi that the market could fall sharply on Tuesday following this tough step by the regulator. However, Sebi sources said the exchange was well guarded by adequate monies in its trade guarantee funds and margins collected from brokers to take care of any eventuality thrown up by a falling market.

The regulator's step is also significant coming as it does on the eve of the Parliament debate into the entire stockmarkets crash and the ensuing Rathi tapes controversy. A Sebi board meeting is also slated for March 15.

In March 1999, Sebi had taken a somewhat similar tough stand against the then BSE chief JC Parekh who as asked to step down from his post following his involvement in a scandal relating to breaking into the trading system after market hours. That scandal had also cost the then BSE executive director RC Mathur his job.