October 19, 2009

life in financial markets: self-inflicted powerlessness

Since the last 10-12 years, as I have been covering the financial markets as a journalist, I have noticed that stock exchanges and depositories do not use the full force of their rules, regulations and bye-laws to reduce incidences of fraud or serious negligence by their member brokers and depository participants (the intermediaries).

There is a mix of two reasons -- one, their own lack of willingness and two, the capital market regulator's (Securities and Exchange Board of India's) un-spoken arrangement with them that they pass on suspect cases to itself and it will take action. The second factor leads to a monopolisation of regulatory power and that, according to me, is not good. Sebi is not at all an efficient and honest regulator. More often that not, it goes after the small fish or the wrong ones! The big ones and the real brainchild behind fraud and scams are very very rarely caught.

Anyway, I wrote something (in the magazine I presently write for) on New York Stock Exchange's recent against its brokerage firm, Citigroup Global and compared that with the Indian scenario. Here it is:


When the New York Stock Exchange, on 7 October, transparently levied hefty fines on three of its member-broker firms, including Citigroup Global Markets, for market rules violations it was an implicit message to its Indian counterparts to get similarly transparent and tough.

Citigroup paid a consent term amount of $150,000 to NYSE for violating the cut-off time restrictions on 'market on close' orders and 'limit on close' orders several times during 2007 and this year.

The National Stock Exchange and the Bombay Stock Exchange have never made public any penal action taken against any of their broker-members for rules violations. The Securities and Exchange Board of India (Sebi) does take such action but under consent orders filed by intermediaries to settle these cases, Sebi does not disclose the details of the violations.

No details of violations such as date or dates and trades are revealed in Sebi's consent orders using which market intermediaries are able to hide their spurious actions under the carpet. A leaf from NYSE's book is, therefore, worth taking.

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