After warning the National Stock Exchange in April over negligence in trade mismatches, the Securities and Exchange Board of India (Sebi) has trained its guns on the currency bourse, United Stock Exchange (USE). Sebi on Friday warned USE to be more cautious in the discharge of its functions and regulatory duties. The warning was issued by Sebi’s whole-time member, Prashant Saran.
USE was found to be in violation of rules with regard to surveillance systems, appointment of directors on its board, structure of the governing board, payment of turnover fees by Jaypee Capital, deputation of staff from Bombay Stock Exchange (BSE), dilution of the independence of the public interest directors and lack of sustainable pricing policy, among other charges. Sebi has directed USE to amend its articles of association within two months.
It all started in August 2011, when Sebi found 80-90 per cent of trading volumes on USE were done by just two players. One of these was Jaypee Capital, founder-promoter of the exchange. Following this, managing director and chief executive officer of USE, T S Narayanaswami, quit the exchange. In a showcause notice in December 2011, Sebi had said the existing state of affairs at USE was not in the interest of the securities market.
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- Jaypee Capital and Todi Securities generated 80-90% volumes
- USE’s surveillance systems not in sync with rules
- Found to lack sustainable pricing policy
- USE denies its board structure is skewed in favour of BSE
USE had made a big-bang entry when trading volumes on its platform broke all previous records on the first day on its platform in 2010. In a three-player market, USE had managed to corner 52 per cent market share that day.
However, following Sebi’s notice, USE began setting right most of its errors, Sebi has noted in its order.
“Once the board was notified about the concentration of trading volumes, immediate and effective steps were undertaken by USE, in relation to the concentration of trade issues. The board has acted diligently to ensure that Sebi’s apprehensions are addressed and dealt with,” Sebi said.
Soon after Narayanaswami’s exit, another board member and business development officer of USE, Saurav Arora, also quit. Saurav is the son of Gaurav Arora, promoter of Jaypee Capital. Sebi had raised objection over Saurav’s appointment. More, USE constituted a nomination committee in the meeting for reviewing the structure, size and composition of the board on a regular basis. USE also submitted that full recovery of turnover fees has been made from Jaypee Capital, along with interest on late payment.
However, warning USE, Saran said, “It is seen that USE has taken certain corrective steps and have brought (in) new directors in order to bring its structure in line with the requirements of prevalent rules and regulations. However, these again appear to be an outcome of the intervention of Sebi. Having considered the above, I am convinced that USE was negligent to a certain extent in the discharge of its functions and duties.”