Calcutta, Dec. 5: The Calcutta Stock Exchange may have long lost its relevance to the country’s capital markets, it could yet pose “a systemic threat to the entire securities market”, according to the Securities and Exchange Board of India (Sebi).
The securities market regulator toppled the governing board on Thursday and instated an “administrator” to manage the beleaguered bourse for one year. In a hard-hitting criticism of the exchange’s administration, Sebi points out a series of serious lapses that, it says, could threaten the integrity of the country’s capital markets.
“Admittedly, the operational management (of the exchange) is weak, if not virtually absent. Extremely critical deficiencies (and financial vulnerability) expose (CSE’s) system to abuse. An exchange with such vulnerabilities can pose a systemic threat to the entire securities market and to investors,” Sebi says in its order, the full text of which was made public today.
The 34-page discourse on the exchange’s inept management starts with a description of the software snags. For years, the exchange has not had any defined policy on data restoration or IT security. “Even the anti-virus software installed on its server was outdated,” Sebi points out amongst a series of gross deficiencies. The bourse had engaged Ernst & Young to conduct a ‘systems audit’ — or a thorough scrutiny of its technology platform. The exercise revealed that its decrepit software platform had to be revamped thoroughly, but the exchange’s management was lax in adopting the corrective measures, says Sebi.
The market regulator then deals with the financial crisis facing the exchange. It posted a loss of Rs 4.01 crore in the financial year ended March 2001, and in the nine months till December 2002, it registered a loss of Rs 2.02 crore. Its losses are widening and in the current financial year, the exchange might not be able to meet operating costs, say insiders. Sebi chides the exchange for not being able to replenish the ‘settlement guarantee fund’ — or the corpus that it used up to meet the Rs 120-crore payment shortfall in March 2001.
Sebi says the public representative directors and the elected members of the CSE board were sharply divided and meetings were marked by acrimonious exchanges. It led to such a situation that decisions could not be taken and even Sebi guidelines could not be implemented. The market regulator even questions the physical fitness of P. K. Ray, the secretary of the bourse.