Who cares fore for the investors – SEBI or the Exchanges? Dheer Kothari

dheerdaBSE and NSE, two premier stock exchanges of the country, have done precious little to establish regular communication channels with each other despite clear indications in the past that it can have disastrous consequences for market integrity and investor protection. We have still not forgotten how ‘freak’ trades on NSE by a broking firm had caused a free fall in prices of several pivotal scrips.

It was to prevent recurrence of such abnormal trades that Sebi came out recently with a circular asking stock exchanges to tighten the dynamic price bands (also known as ‘dummy filters’) in case of securities  which are excluded from the requirement of price bands. Normally, such dynamic price bands are relaxed by stock exchanges when a market wide trend is noticed in either direction. Now as mandated by Sebi, stock exchanges are required to reveal the price limits for a security beyond which orders will not be executed.

To begin with stock exchanges are required to fix an initial price band of 10 per cent based on the previous day’s closing price. This rule is applicable for all securities on which derivative products are available or securities included in indices on which derivative products are available or index futures and stock futures. Although the BSE is following this directive in letter and spirit so that investors are made aware of the scrip wise filters, NSE still continues to ignore this directive. I found to my surprise that NSE does not show such circuit limits in its scrip search window on its website.

A BSE official confirmed to this writer that these filters are ‘indicative’ but still serve a purpose. “We consider relaxing these bands as soon as the security in question reaches the 7 per cent mark. If it is a market wide trend, the limit is relaxed by another five per cent over and above the predetermined 10 per cent limit. We are showing these limits for all eligible stocks coming under the dynamic price band.”

Even in the NSE fiasco in which a staff of a broking firm punched in erroneous trades leading to a free fall in several pivotal scrips, I found that instead of alerting BSE about the incident, NSE preferred to shove it under the carpet and came out with a feeble explanation when things went out of hand. No one bothered to find out why BSE and NSE were moving in different directions on that fateful day! If Sebi rules are not implemented in its entirety by stock exchanges then how can investors have confidence in the so called transparent and impartial exchanges which never tire to flaunt their credentials as a thriving and vibrant global exchange? Should not Sebi take the errant exchange, in this case NSE to task for misleading investors?