SEBI imposes curbs on short sales to rein in bears

The bear rally on the stock markets was arrested on Thursday after the Securities and Exchange Board of India (SEBI) imposed an additional 10% margin on short sales of shares. Thanks to the Sebi directive, sensex bounced back by 128 points from the day’s low of 3,207.54 points to close with a gain of 24 points at 3,335.76 points on the Bombay Stock Exchange. As a result of the Sebi measure, bear operators who were making short sales were forced to back out. “Sebi arrested the drastic fall in equity values,” said a broker. BSE president J C Parekh too dismissed any possible default by members or any payment crises on the exchange while stating that the exchange had already taken pro-active and preventive measures. According to Sebi chairman D R Mehta, the margin on short sales was aimed at stopping speculators from taking undue advantage of the depressed market sentiments. While the BSE and the NSE imposed special margins in mid-session, other bourses such as the Delhi StockExchange (DSE) will follow suit from tomorrow, Mehta said. It is learnt Sebi is planning to investigate the involvement of Harshad Mehta and brokers connected with him in the sensex fall. According to sources, three BSE brokers’ terminals were switched off on account of their failure to pay up the mark-to-market margins, and ad hoc margins were imposed on five brokers which could take care of any such problem in the near future. “The imposition of 15% margins over and above the 10% margins of short sales in A-group securities, coupled with UTI’s timely intervention is bound to bring the market back to realistic levels,” explained a BSE broker. Domestic institutions, especially UTI, also supported the market, thereby encouraging other operators. The market showed extreme volatility again on Thursday. The sensex initially fell to 3207.54 but recovered later by 128 points after the Sebi measure. Immediately after the margin was imposed, share values on both BSE and NSE started lookingup. Currently, there is already a ten% margin on short sales and with today’s announcement, the overall minimum margins would be 20%. The ten% margin is the minimum fixed by the board and stock exchanges were free to increase this as per their own judgment. In the A-group, over and above the Sebi-dictated ten%, BSE has set an additional five% margin, taking the total margin to 25%. Parekh said the exchange was geared up to face any payment default. It is learnt that four brokers are facing problems in meeting their commitments. Harshad Mehta who accumulated stocks of BPL, Videocon, Sterlite, Zee TV and others were facing severe payment problem. The big bull has reportedly unloaded heavily on the BSE and NSE to tackle the payment problem.