SEBI bars UBS Securities

Exactly a year after the `Black Monday', May 17, 2004 stock market crash, the Securities and Exchange Board of India (SEBI) has issued orders against the Swiss investment firm, UBS Securities Asia Limited (UBS), for its role in one of the worst crashes in the history of the Indian stock market. The capital market regulator in its order on Tuesday barred UBS, its affiliates and agents from issuing off-shore derivative instruments (like Participatory Notes) with underlying Indian securities against the positions held by them in the Indian securities market for one year. They were also barred from renewing or rolling over any of the offshore derivative instruments. In this significant order SEBI further raised its serious concern on offshore derivatives instruments. "The findings in this case have highlighted serious regulatory concerns in that the Participatory Notes (PNs) or Offshore Derivatives Instruments (ODIs) and its cover of anonymity is being used by certain entities without there being any real time check, control and due diligence on their credentials." The PN is a derivative instrument issued by foreign institutional investors to market participants (overseas) who do not wish to reveal their identities, or are not registered with the Indian regulator. On May 17 last year, the Sensex crashed 842.37 points, the biggest intra-day crash in the exchange's 129-year history, in the aftermath of the election of the UPA Government at the Centre. Later, in the day the Sensex had recovered to close at 4505.16 with a loss of 564.71 points. The same day, the NSE Nifty lost 193.65 points to end at 1388.75. "UBS was among the largest selling clients and had sold securities valued at Rs. 188.350000000. These sales constitute as much as three% of the market (BSE and NSE cash segment taken together) traded value of Rs. 6,092.030000000.........I hold that UBS has failed to comply with the relevant clauses of the code of conduct as applicable to foreign institutional investors," G. Anantharaman, whole-time member, SEBI, stated in his order. "I hold that UBS is guilty of non-compliance with Regulations 15A, 20 and 20A and clauses 1,2,5 and 6 of code of conduct applicable to FIIs as laid down in the FII Regulations", Mr. Anantharaman stated. Fears over tainted money PTI reports SEBI said it would increasingly seek assistance from fellow regulators in other markets to probe inflow of funds through routes like participatory notes (PN) in the country. "The regulator has a discomfort if it does not know whose money it is. There was significance about the nature of funds due to concerns over tainted money,'' the SEBI Chairman, M. Damodaran, told reporters here. SEBI had sent show-cause notices to 12 entities. Some of them had responded and hearing would be conducted in some cases, he said.