The Securities and Exchange Board of India has found an easy way to control share price rigging, after fears that Ketan Parekh, master manipulator of early 2000s, may be back in action.
The regulator will ask suspicious traders to give an undertaking to stock exchanges, explaining their link to the promoters of the companies whose share prices they may be trading in.
Easy, for the regulator and also the riggers.
A report in The Economic Times says the Sebi has asked stock exchanges to take steps to get an undertaking from brokerages and their clients, if they indulge in suspicious trading.
Such a client will also have to update his KYC (know your customer) and disclose the source of funds used for trading, the report said.
This is in view of widespread circular trading where promoters push up their companies’ shares using their own money.
Whom are these steps going to help? Perhaps, not investors. Because they would not know who all have been asked to furnish such an undertaking, and which stocks witnessed suspicious trading activity.
And would it be difficult for a rigger to find ways to get around declarations?
Such actors would very well know surreptitious ways to evade all such regulator surveillance.
That manipulation is rampant in the Indian stock market is common knowledge. Watch the share price movements of companies just before they make an important announcement like earnings. One would need no more proof of the rigging.
The latest move has the right intentions, but will enable the watchdog to conduct a probe only after the damage is done.
What is required is a strong and transparent system in place where retail investors are warned of such share movements so that they can keep away from such suspicious shares.
A report on the India Today website had recently said the Intelligence Bureau has unearthed a major stock market scam involving Ketan Parekh, who has been banned from securities market until 2017.
The report said Parekh and his cartel have continued “their illegal activities using circular trading, insider trading and use of front entities to rig up prices.”
Dewan Housing Finance Corporation (DHFCL), Goenka Diamond and Jewels, Orchid Chemicals and Pharmaceuticals (OCPL), IVRCL, Pantaloon Retail (India), Tribhovandas Bhimji Zaveri and GMR Infrastructure were among companies that figured in the IB report.