Sebi bans brokers from BSE board, other bourses may follow

Sebi bans brokers from BSE board, other bourses may follow
ENS ECONOMIC BUREAU

Mumbai, March 28: The market regulator finally took the first step towards keeping brokers away from the managements of the stock exchanges. The Securities and Exchange Board of India (Sebi) on Wednesday ordered that brokers would not be allowed to sit on the Bombay Stock Exchange (BSE) governing board until further orders.

The decision follows an earlier one, passed on March 12, when Sebi had banned the former BSE president Anand Rathi and six other broker-directors from sitting on the BSE board until further notice. The Sebi decision, taken under Section 11B of the Sebi Act 1992, which gives the regulator wide-ranging powers to act in the best interests of the market, came even as the BSE held elections for three seats of the governing board which fell vacant.

The Sebi order, however, does not annull the elections, but merely prohibits those elected from sitting on the board. The order also means that the board now comprises nine public directors and the executive director AN Joshi, who is now in charge of the management of the exchange. The decision came after a crucial meeting in Mumbai of the Sebi board which was attended, among others, by the chief economic advisor in the finance ministry Rakesh Mohan.

The step is also likely to be a precursor to similar action against other stock exchanges, particularly the Calcutta Stock Exchange (CSE), which has been grappling with a payment crisis for sometime now. Though Sebi chairman DR Mehta did not spell out as much during an impromptu press conference after the board meeting, he said: ``Please take the hint.'' He said Sebi was also studying the various modalities and other issues before it decides on the possibilities of extending the decision on the BSE to other bourses.

Even as all this was taking place, the BSE completed the process of elections to the governing board. The three brokers elected were Sunil Shah, who garnered the highest number of votes, Apurva Shah and Ashok Kumar Damani. Rajendra Prasad Jhunjhunwala and Kirit Kumar Fulchand Vora lost the elections.

These three directors have technically been elected for three years, but Sebi's decision puts a question mark on their tenure, since it is now unclear whether, if at all, the regulator will reverse its decision to keep brokers out of the board. Even otherwise, the finance minister has made it clear that the government will press ahead with corporatisation of the exchanges to keep brokers out of decision-making at the stock exchanges. Ironically, the exchange authorities came to know of the Sebi diktat just as the counting of the votes was nearing completion.

JR Varma, Sebi board member, said the first step towards keeping the brokers away from sensitive market decision-making was to keep the surveillance department away from the brokers' reach. However, he said since the Rathi tapes episode proved that the segregation of the brokers from the sensitive aspects of the exchange was not working adequately well, and hence the Sebi decision.

Rolling settlement plan: The SEBI board also reviewed the progress of the rolling settlement and decided to introduce the scheme for 424 scrips by July 2, 2001, against the present number of 163. Mehta said directives to this effect have been issued tothe exchanges and "we expect them to have the necessary infrastructure in place by July".

Those exchanges which fail to provide adequate infrastructure would be permitted for trading on spot delivery basis, he said. Asked about extending the directive regarding BSE broker-directors, Mehta said "this is a complex issue and we have to work on modalities. There is a possibility of extending the application of this order to other exchanges," he added.

Mehta said the decision on expanding the number of scrips for rolling settlement was taken on the basis of the Finance Minister's announcement of introducing such system for at least 200 scrips by July. On drastic reduction in trading volumes after the ban on short sales, he said for the capital market regulator "safety was the first priority and volumes and trading trends could be looked later."

"We will review the ban on short sales based on experience at various stock exchanges and take decisions later," he added.

Final order on Rathi case on Mar 30
Mumbai:SEBI will pass a `reasoned order' on the controversial issue of prohibiting former Bombay Stock Exchange president Anand Rathi or his firms from trading on the exchanges on March 30. The legal counsel for Rathi made a presentation before the SEBI board today and "we will take the decision about it on March 30", SEBI chairman D R Mehta said.

SEBI had told Bombay High Court last week that it would give final hearing to Rathi on Wednesday and pass a order detailing reasons for restraining him or his firms from trading on the exchanges. Rathi's petition in HC challenges SEBI's decision of March 13 to prohibit him from trading and also challenges SEBI's order to stop him from acting as member director of BSE.