The Securities and Exchange Board of India is said to be probing the alleged “foul play” that led the markets to crash by 16 per cent since the high of November 5, 2010. As usual, Sebi wakes up to bolt the stables after the horses have fled. According to reports, it is probing around 25 entities which are supposed to have acted as cartels to bring down prices of about 100 stocks.

These include some of the Sensex 30 blue chips and mostly medium- and small-cap stocks. It has been calculated that around `1,50,000 crore in investor wealth has been lost cumulatively since November. If this is true, then Sebi’s inaction all these months can hardly be forgiven. If there was a deliberate hammering down of the markets by a large number of cartels, what was Sebi doing? A probe now is of hardly any consequence because it will take months, if not years, to come to any conclusion, if there is one at all. And then, too, it will be some innocuous unheard-of brokers who will be penalised a petty amount, or suspended for a few days or months. This is nothing new. Sebi on a regular basis suspends brokers for market manipulation of stocks for a few months; these brokers then return and start their manipulations again. There should be a total ban on brokers suspended more than thrice for manipulating stocks.
Of course, it must be said that nobody complained when the markets were going up at a scorching pace in 2009-10. Now, when they are correcting themselves, there is a hue and cry. It was the foreign institutional investors who took the markets to giddy heights. As the US and European markets recovered, FIIs withdrew their funds from emerging markets to invest there. Everyone knows FII funds are short-term and that they leave at the first sign of trouble, or if they see better markets elsewhere. Since the markets went up highest in India, the fall has been the hardest here. The government and the RBI, which should have acted to curb these short-term flows, didn’t, and so the Indian markets are bearing the brunt.
Whilst Sebi, under the chairmanship of Mr C. Bhave, has done a lot to get a fair deal for the small investor against market manipulations, there are a lot of more important things it must do. Most important is the long-standing demand of physical settlement in the futures and options segment, where most of the foul play goes on. Sebi has been aware of this but for some inexplicable reason it has refused to act. In most parts of the world settlement in the F&O segment is in physical delivery, but Sebi continues the practice of settlement in cash, ostensibly to please a few well-connected corporates. Also, Sebi has mandated that transactions of promoters and management who trade in the cash market have to be disclosed daily. But it does not mandate the same if these entities play in the F&O segment. So the investor is misled by the buying/selling of the promoters and big players in the cash segment and is unaware that these same entities may be selling/buying double the amount in the F&O segment. This way investors are taken for a ride. A lot of manipulation also takes place in thinly traded stocks. Sebi should get such stocks delisted from the main exchanges and get them listed on other smaller exchanges.
What comes out of Sebi’s proposed probe, and how it will prove “foul play”, remain to be seen. It would be better, meanwhile, if it takes steps to curb the mischief in the F&O sector.