JPC pulls up Sebi for stock market scam

The Joint Parliamentary Committee has come down heavily on the Securities and Exchange Board of India (Sebi) for its failure to investigate cases of stock market manipulation by certain companies and even act on the reports of the stock exchanges. The JPC said that had the Sebi acted on these reports, the March 2001 crisis in the share market could have been prevented. The JPC blamed the Sebi for its failure to investigate flow of funds and involvement of corporate houses to rig certain scripts despite NSE forwarding a report in August 2000 and BSE altering in 1999 and early 2000. In its top secret two-part draft report circulated among the members, the JPC dismissed the Sebi’s contention that stock exchanges never indicated any need for investigation into the behaviour of select scripts. the JPC said that Sebi failed to investigate despite a report sent by the NSE. ‘Sebi’s neglect in this regard is inexplicable considering the fact that the very same scripts were found to be manipulated after the probe was ordered following the March 2001 crash’ said the draft report. The draft report dealing with various aspects of the share market scam of March 2001 will be finalised at the next meeting of the JPC this month ends. The JPC which began its three-day meeting on July 10, could not finalise its report as members wanted more time to study the draft report. The JPC also noted that even BSE had forwarded its investigation report on the scripts of two corporate bodies in the month of December 1999 and February 2000. Sebi did not act on these reports. But after the crash in March 2001, Sebi’s interim report found that prices of scripts of those corporate bodies had been manipulated. ‘Had the Sebi undertaken speedy investigation and swift action on the BSE reports, the price manipulation of these scripts could have been detected and subsequent crisis prevented,’ said the interim report. The JPC noted with concern Sebi’s move to first shift the responsibility of surveillance on the movement of scripts and volumes to stock exchanges claiming that it was primary concern of the latter. But Sebi did so fully knowing that stock exchanges were not equipped to monitor this particularly when Sebi said in its own report in 1998 that Stock Watch System at exchanges had serious deficiencies. The JPC rejected Sebi’s attempt to abdicate its surveillance responsibility and put the entire blame on stock exchanges for failure to detect market manipulation. The JPC rejected Sebi request that a separate authority be created to monitor the flow of funds into the stock market and said that such a move would compound the problem.