Damodaran: Close watch

Jan. 6: A day after abnormal trading in Tulip IT Services came to light, the Bombay Stock Exchange (BSE) ruled that all orders that were executed below the price of Rs 96 per share would be deemed to have been transacted at a price of Rs 171.15.

The exchange said the price of Rs 171.15 had been arrived at by taking the weighted average price of the trades executed at or above Rs 96 against the said sale order.

Tulip debuted on the BSE on Thursday at a price of Rs 185 per share against the issue price of Rs 120. But in an abnormal trade, over 4.04 lakh shares changed hands at a price of 25 paise per share. Some investors lost over Rs 12.69 crore within seconds because of this freak trade.

The BSE action came within hours of the Securities and Exchange Board of India (Sebi) asking the exchange to find out whether there was a manipulation in trading the shares of Tulip.

“There are two issues. First, has there been any manipulation? Second, what to do with the transaction?” Sebi chairman M. Damodaran said on the sidelines of the Hero Mindmine Summit in New Delhi.

“I was the first person to point it out,” said Damodaran.

According to the existing policy of the exchanges, no circuit filter was applied on the first day of listing to enable price discovery. Circuit filters are applied on the closing price from the second day of trading.

In a statement issued today, BSE said the sale order of 25 paise was placed at a price unrelated to the then prevailing market price and had a significant distortionary effect on the trading in the shares. Initially, the sale order was matched against outstanding buy orders at various prices. All subsequent buy orders were matched at 25 paise.

To minimise the distortionary effect and to protect the interest of entities dealing in the shares, BSE said buy orders at a price higher than Rs 96 and matched against sale order would be deemed to have been transacted at such prices at which the trades were executed.

Clause 49

The compliance with clause 49 by listed companies in India will be known within the next fortnight, Damodaran said.

Clause 49 of the listing agreement stipulates that at least 50 per cent members of the company board should be independent directors by December 31, 2005.