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Jaswant vows to clean up bourses

New Delhi, May 9: Finance minister Jaswant Singh today presented an action-taken report on the recommendations of the Joint Parliamentary Committee (JPC) which investigated the 2001 stock market scam, vowing to punish the guilty and detailing steps taken to tighten surveillance of the equities market.

Singh’s report, presented to Parliament, said the Securities and Exchange Board of India (Sebi) is likely to institute an independent enquiry into any improper conduct of its officials deputed to handle the Calcutta Stock Exchange (CSE) payment crisis.

The probe will determine whether Sebi officials had any role in facilitating Unit Trust's off-market purchases from the CSE.

In its report, the JPC had accused several CSE brokers as well as high-profile stockbroker Ketan Parekh of being the key player in the scandal.

Singh said the government has enhanced Sebi’s powers to take action against security market defaulters, initiate action against brokers and companies involved in insider trading and price manipulation of various scrips.

“In respect of important recommendations about corporatisation and demutualisation of stock exchanges, the government has initiated (more) measures,” he said.

The government is planning a demutualisation that will convert the bourses into independent shareholders. This is expected to bring greater flexibility and transparency in dealings.

Singh said the government had scrapped a previous practice whereby brokers became members on the board of bourses, which gave them the opportunity to manipulate prices. “Sebi has set up a separate division for the inspection of exchanges and taking follow-up action on the status of compliance of the recommendations,” he said.

The report also focused on the need to monitor the activities of overseas corporate bodies (OCBs) and foreign institutional investors, evolving a system of giving out red alerts based on sudden and inexplicable spurts in inflows or outflows.

The report says the RBI will be on the look out for data on ADR/GDRs purchased by OCBs outside India and their conversion routes. It will also examine investments in foreign currency convertible bonds, shares purchased by OCBs outside India, as well as their market transactions here.

The RBI will soon come out with a report on its findings based on an in-depth study of the OCB investment pattern. Direct involvement in stock exchange frauds by rogue overseas corporate bodies operating out of the island tax haven of Mauritius was one of the key findings of the JPC report.

These OCBs, which are now suspected of being fronts for promoters of Indian companies, have been indicted for circular trading to rig share prices of certain specific shares by artificially pushing them up or down. They have also been accused of trading in shares without actual deliveries and even without a real fund flow, implying nexus with stock brokers and companies.

Investigations in some scrips — Mascon Global, Shonk Technology, Aftek Infosys, Adani Exports, Global Trust Bank, Lupin Labs — have revealed that Ketan Parekh and others used many of these OCBs and FII sub-accounts to park shares, trade in circles, creating an artificial market bubble. At times, these ‘smart’ and illegal market moves also circumvented several established rules such as the Takeover Code.

Singh said more action was planned to clean up the markets. “It has been the endeavour of the government to act upon each of the suggestions of the JPC and complete the action taken at the earliest. In certain cases where wrong-doers had to be identified and punished, action is still in hand. We shall ensure that wherever such action is pending, it is completed early,” he said.

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