Nse 5-Pronged Offensive To Tackle Fake Shares

The National Stock Exchange (NSE) has launched a five-pronged attack to tackle the entry of fake and forged shares at the exchange. The focus has now shifted from mere remedial action to an intensive investigative approach .

Commencing this week, the exchange will carry out random verification of trading operations of all member-dealers , looking into issues like size and extent of fake and forged shares being introduced, the entry pattern of such shares, the group of brokers who could be operating and the common trails left behind.

Pre-verification of company shares by the registrars has begun at the clearing corporation stage itself. This is done to tackle the problem before it flares up at the markets.

 

Nine companies have already come under this pre-verification schedule and at least 30-40 companies will be included over the next month. We are seeking to identify the problem before it enters the system, that is before the payout is declared, NSE deputy managing director Ravi Narain said.

The bourse has written to the Securities and Exchange Board of India (Sebi) to ask companies to take a hard look at the quality/printing of share certificates.

The exchange has suggested that technological advancements should be utilised to bring in the necessary safeguards while printing share certificates.

The bourse has shot out letters to at least 200 leading Indian corporates early this week to seek co-operation/views on the issue of fake/forged shares and advising caution from their end.

It has also co-ordinated with the economic offences cell of the Mumbai police to tackle this problem.

The cell has tipped off the exchange that the risk of entry of fake and forged shares is greater in illiquid stocks.

It is in these stocks that false volumes are built up and share price pulled up, which could bring the unsuspecting broker into trouble, a senior NSE official said.

NSE has decided that one member would not be allowed to trade with another without prior permission from exchange.

The incidence of fake and forged shares at the exchange has affected trading at the capital markets in recent months, particularly through the incidence of Vipul Securities at the NSE.

The case was an eye-opener for us and there are several lessons to be learnt from it, an NSE official said. The firm, which had a total liability of nearly Rs 4 crore, has not yet brought in the full amount, exchange officials said.

Marketmen fear that NSE, with its nationwide presence, runs the risk of such shares being dumped through brokers/sub-brokers from other smaller bourses.

NSEs decision to tackle this problem a war footing stems from this market risk. It had, in March, strengthened guidelines relating to fake, forged shares.