The Telegraph
Since 1st March, 1999
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New law to help prevent gilt scams

New Delhi, Dec. 9: The Union cabinet is expected to clear a comprehensive law on government securities replacing the outdated public securities act tomorrow.

The new law will plug loopholes which have been misused in the past by financial scamsters by dematerialising government securities — both issued by the Centre and the states.

It will also bring in safeguards which will make it difficult to misuse the securities general ledger and provide for separation of standard coupon-bearing bonds into individual coupon or the principal amount and maturity payments or interest earnings.

The Harshad Mehta scam was totally based on misuse of the securities general ledger and had caused the entire stock market to collapse. This move to demat government securities had been suggested by both the joint parliamentary committees set up to look into two different stock market scams.

The statement of objects of the proposed law states that it will help growth of an “efficient debt market” and spur better customer service. Analysts said the moves would enable brisker trading and deepen the gilt market.

Earlier, the government had brought laws to amend the Securities Contracts (Regulation) Act framed in 1956 and the Depositories Act, 1996 for corporatisation of these bourses which operate as a “non-profitable” institution.

The government officials said the draft bills, which were on the basis of joint parliamentary committee recommendations give effect to the policy of “corporatisation” and “demutualisation” of the stock exchanges. The standing committee on finance is studying the bill.

Demutualisation, which separates members with voting rights and management from trading, would also result in streamlining the decision-making process in bourses through the appointment of a professional management body.

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