Nse Decides To Scrap Auctioning

The National Stock Exchange has scrapped the system of auctioning shares when the delivering member fails to replace fake shares within the stipulated time in a particular settlement cycle.

R H Patil, managing director, NSE, said, The system of auction, if the delivering member fails to replace the shares within a certain time, has been scrapped. The exchange now directly buys shares from the market, and replaces the fake shares.

This change in policy is to further speed up the process of dispensing with fake/forged shares floating in the exchange. Secondly, the auction procedure used to push up prices of shares. This could be avoided if the clearing corporation of the exchange directly buys from the market like any other buyer. The difference between the selling price and the price at which the exchange buys from the market is debited from the account of the delivering member.

NSE brokers said that the system of filtering out fake and forged shares being traded on the exchange, especially in the counters of Reliance and SBI, is faulty as it penalises and causes harassment to genuine brokers.

In the present system, if the representatives of the registrars, RCS and MCS, find shares to be fake, the certificates are cancelled, and an objection memo is issued to the delivering members. The delivering members are then given seven days time to replace the fake shares failing which the clearing corporation directly buys shares from the market and debits the difference from the delivering member.

The delivering member may then lodge the shares as company objection against the introducing member. Then the procedure for bad delivery of shares will be followed by the exchange. The NSE then tries to trace back the chain and identify the introducing member. The introducing member, if identified, has to pay up an amount equal to the value of the fake shares or replace the shares by genuine ones. Later, the delivering member gets reimbursed by the exchange.

Brokers argument is that if they are not the introducing member, they should not be forced to replace the fake shares within such a short span of time or pay the price difference to the exchange. This move, according to them, effectively penalises those who may not be responsible for circulating the fake shares.

The lop-sided approach is further aggravated by the fact that when the introducing broker is finally traced, he is given 21 days to replace the fake shares or pay up when the delivering member is allowed only 7 days.

Officials of the exchange said that the present system was the only way out if the efficiency of the settlement and clearing process is to be maintained.

The suggestion being put forward by some brokers is that the NSE directly trace the introducing member and demand replacement of scrips or debit money from his account.

However, according to NSE officials, it is impractical because the settlement process cannot be completed within the stipulated time.