MFs face corporate redemptions: Bhave

Sebi chief says no systemic risks, rules out ban on short-selling.

Mutual funds are facing heavy redemptions as companies have been withdrawing money in recent months.

Confirming this, Securities and Exchange Board of India (Sebi) Chairman C B Bhave told Business Standard, “we have received information about redemptions by companies and are collecting the data. We will study the problem in details.”

Bhave, however, said the Reserve Bank of India’s decision to release Rs 60,000 crore into the system by reducing CRR should provide some relief.

Commenting on the current market situation, Bhave said the stock exchanges have told the regulator that settlements went through smoothly and there is no payment crisis. He said the system is working quite well.

Bhave said there are no systemic risks and settlements have been completed smoothly. There are no problems related to margin payments from brokers as well.

“The integrity of the system is intact and we are keeping a close watch on that,” he said. According to official information available from NSE, it has more than Rs 40, 000 crore as trade guarantee fund (Rs 4,767.60 crore in the cash segment) and (Rs 36,972.70 crore) as on March 31, 2008.

The Sebi chairman said there is no proposal to ban short selling in the Indian market. Banning shorts in derivative means closing derivatives trade, he said.

Short selling means selling shares without possessing them. Internationally, investors were borrowing shares from other investors to sell them. This was disallowed by some of the countries to support steeply falling markets.

In India, short selling was allowed a few months ago but the mechanism has not been used in the market because the norms for such short selling are not considered market-friendly. Investors, especially individual investors, can do intra-day short selling, that is first selling and covering them before the close of the market on the same day.

When asked if the permission to issue P-notes for derivative transactions may be used for short selling in the F&O segment, he said even when FIIs were not allowed issue of P-notes in derivatives, they were selling the Nifty index on the Singapore Exchange platform.