The Securities and Exchange Board of India (Sebi) is re-examining its directive that negotiated deals and kerb deals should result in delivery of securities. This issue, which was agreed upon by all stock exchanges at an annual meeting, is set to come into force from June 1.
Sources said representations have been made by marketmen that the new directive would only make the delivery procedure more cumbersome and threaten genuine institutional business which takes place at SEs through negotiated deals.
The regulator has been urged to reconsider the directive on the ground that trading sentiment will be affected severely.
According to a source, any market sensitive development after trading hours having a serious implication would force brokers to take a position in an open market. Can the regulator stop this from happening by attempting to crack down hard on off-market deals? asked some bourse officials. It is learnt that players have discussed these issues with Sebi officials through informal meetings.
The Sebi move came about in March when inspection of stock exchanges (particularly Ahmedabad, Kanpur and Calcutta) revealed that large speculative trades took place outside the markets as negotiated deals and this was not reported back to the exchange.
The move is now to check malpractices, improve transparency at the markets and bring speculative trading within the official market trading practice.
According to sources, the genuine institutional business (which does not necessarily result in delivery) between clients would be affected severely. In the new trading system, the institution (A) would have to locate a broker (B) to find a buyer for the lot of shares.
The broker (B) would select broker (C) who has an institutional client (D) and for the negotiated deal to be struck, B would have to take delivery from A and give it on to C for his institutional client D. Over the years, the negotiated deals were done through the custodians of the two institutions of A and D, which ensured a streamlined process.
The argument by the market players is that the new directive would upset the delivery time and kill genuine business.
When asked why these issues were not discussed threadbare during the annual meeting on March 19, a leading exchange official, on condition of anonymity, said, The stock exchanges have not been given freedom to take decisions. Sebi is now micro-managing exchanges. They (Sebi) seemed to be in a different mood at that moment. The market is also uncertain about whether netting off would be allowed regarding negotiated deals.
While recognising the case that trading interest in kerb deals will diminish once this directive comes into place, the BSE is considering the extension of official trading hours at the exchange after taking the views of member-brokers.
