Sebi Asked To Tighten Norms For Regulating Short-Selling
The existing Sebi norms (the fraudulent and unfair trade practices regulations) dealing with price-rigging are sketchy when it comes to regulating short-selling. The regulator did crack down on short-sellers in the past -- against those responsible for creating market "disequilibrium" -- but was unable to effectively pin down violators because of inadequate guidelines. The ministry has now directed Sebi to amend these norms to specifically deal with short-selling, subject to the approval of its board.
The move follows a steep fall in delivery-based trading on all the major bourses, including the NSE which is being promoted by the government as a cash-based market.
Government sources said the proposal has the backing of finance minister P Chidambaram who is particularly concerned about the high degree of speculative trading at a time when the market is working to the advantage of bear cartels. For instance, the ministry was perturbed over the price movement on the ICICI and SBI counters on the eve of their GDR offerings, where the shallowness of the market facilitated institutional investors to hammer down prices despite a wide dispersal of shares, the sources said.
The ministry has directed Sebi chairman D R Mehta to finalise the proposed amendments and place them before the Sebi board for sanction. At present, FIIs are debarred from entering into speculative trades. Many mutual funds are also forbidden by their charters to enter into such transactions. However, there are no specific regulations curbing short-selling by domestic players.
While the ministry stand on short-selling is that speculation is not undesirable so long as it does not result in a payments crisis, government sources said the ministry is keen that Sebi should define what connotes the ``desirable'' and ``undesirable'' degree of speculation.
BSE PIPS NSE IN DELIVERY-BACKED TRADES
The BSE has outperformed the NSE in effecting more delivery-backed transactions, with 21.91 per cent of the trades contracted on the exchange resulting in deliveries in 1995-96. This is against 17.88 per cent delivery-backed transactions witnessed on NSE during the same period. The Madras exchange is fast emerging as the foremost cash-based market in the country with all transactions resulting in deliveries. The trend -- witnessed on MSE in the last two fiscal years -- comes at a time when the national average for delivery to total transactions stands at 13.78 per cent. The second best performer by this criterion is the OTC where the percentage of transactions resulting in deliveries is 97 per cent. The Calcutta Stock Exchange has emerged as the most speculative exchange with just 4 per cent of the trades resulting in deliveries in 1995-96.