Albm Shares Are Being Routed To Other Bourses

Some brokers have approached the Bombay Stock Exchange (BSE) administration, the Unit Trust of India and other institutions alleging that shares from the National Stock Exchange's (NSE) automated lending and borrowing module (ALBM) are being routed into other markets.

This, they have said, is leading to "intentional effort at depressing markets, as the selling brokers can meet delivery commitments at other exchanges out of the ALBM shares."

The brokers have also claimed that deliveries through this route have led to a sharp fall of more than 20 per cent in the Sensex and the mechanism is more or less a modified version of the `Chalu Upla' which has been banned by the Securities and Exchange Board of India (Sebi).

 

Sebi had banned `Chalu Upla' on the recommendations of the G S Patel committee report in 1995 and had upheld the decision also at the modified carry forward system (MCFS) in 1997 which was submitted by J R Varma committee.

The brokers have raised the issue with the Bombay Stock Exchange (BSE), UTI, LIC and GIC that select players have been introducing NSE's ALBM shares for delivery at the BSE. They point out that since the borrower of the shares at the ALBM segment has the liberty to utilise the share delivery for 10-12 days (as his settlement ends on next Tuesday and delivery is supposed to be given at the pay-in period only) he misuses this period for undertaking intentional selling at other exchanges with an objective to depress the markets. The borrower, later covers his position at the NSE within the settlement at lower levels.

NSE officials, however, said that the entire reasoning was absurd and to pinpoint that ALBM segment was the reason for the fall at the Indian markets was ludicrous.

"By the very definition of ALBM, the securities borrowing scheme is meant for investors to borrow securities and complete the settlement obligations at different exchanges. Therefore, to term it as Chalu Upla is incorrect."

"Primarily, the total volumes at the ALBM segment are not more than Rs 400-450 crore and these volumes have picked up only when market crashed and members needed an exit route. Therefore, to say that the system is leading to a depression is also irrational," said NSE officials.

"Secondly, how can one presume that shares from the ALBM segment are being introduced for delivery at other exchanges when all the securities at the ALBM are in demat mode," queried the officials.

"Moreover, considering a hypothetical case, where all the securities borrowed at the ALBM segment are sold and marked for delivery at other exchanges, still the borrower of the shares at the ALBM segment has a fundamental obligations to return back the borrowed securities to the NSE within a week," the official said

As a result, "the borrower delivering the shares at any other exchange is taking the risk of having to buy back the shares and there by exposes himself to a price-risk. Therefore, if the member has to buy back securities worth Rs 400 crore from the open-market this should definitely result in an upward pressure on the prices" said the NSE officials.