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Custodians in bailout bid
Liquidity gets top priority

Mumbai, May 22: The two regulators ' Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) ' came together in a rescue mission to calm thousands of anxious nerves and prevent further investor panic when stocks were falling like ninepins.

While Sebi chief M. Damodaran tried to soothe jangled nerves, the RBI took steps to ensure that liquidity problem does not spoil the recovery spirit.

The twin moves played a vital role in pulling back key indices from their worst intra-day fall brought about by brokerages selling shares to meet margin requirements of clients.

After the benchmark index, the 30-share BSE sensex, plunged 1111.70 points, the actions of RBI and Sebi pulled the index back by around 655 points. The regulators’ efforts was not lost on the market.

“Investors have faith in the Indian markets as the regulators have kept the right systems in place. Today's move by Sebi, Reserve Bank and the finance ministry soothed the nerves of investors. Their reassurances indicated that there are no systemic problem in the domestic markets,” said Jaiprakash Sinha, head of research, Kotak Securities.

Damodaran, who left for Delhi to brief finance minister P. Chidambaram, appeared on television channels to urge investors not to panic and reassure them on the absence of any inherent flaws in trading.

“There are no reasons to worry. Sebi is in touch with RBI and the finance ministry and there is no liquidity problem,” he said in Mumbai.

Damodaran said the regulator was closely monitoring the markets.

Exhorting investors to act on the basis of facts, he reiterated there were no systemic issues impacting on the bourses. The Sebi chief urged investors to dump speculations and stand by facts.

On the demand by brokers for an institutional funding mechanism, Damodaran said brokers should take up these issues in their individual capacity with the bankers.

Even as the Sebi chief made these appeals, the Reserve Bank approached banks to meet the demands for liquidity. “In light of the developments in the stock exchanges, the RBI has been in touch with major settlement banks and both the major stock exchanges to ensure that the payment obligations on the exchanges are met smoothly,” a statement from the central bank said.

Bourses on alert

Apart from the regulators, both the BSE and NSE authorities allayed rumours of a payment crisis that could have caused a further meltdown.

“The settlement process for Thursday’s trading have happened smoothly today and the brokers have made the necessary pay-ins. Since our risk management systems are in place in the cash segment, we do not anticipate any future payment problems,” said Rajnikant Patel, BSE chief executive officer.

A statement released by the NSE said, “there have been some rumours today with regard to the smooth settlement of funds and securities at National Stock Exchange. It is clarified that the settlement for both the equity and derivatives markets were completed smoothly and successfully.”

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