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Surveillance at bourses falls short: Sebi

Savio G Pinto

The Securities and Exchange Board of India's report on the recent stockmarket crisis has panned the stock exchanges over their failure to detect excessive concentrations in shares and said that the surveillance mechanisms reveal several inadequacies.

Sebi said apart from providing certain specific and statistical details the periodic reports of the exchanges should indicate any important happenings, trends, events, specific actions/decisions, which have a bearing on risk management of the exchange and safety and integrity of the market.

The report said that none of the reports from the National Stock Exchange, Bombay Stock Exchange, Calcutta Stock Exchange or any other major exchange, indicated any significant adverse trend or abnormal happenings or issues of concern related to market integrity and safety."

Sebi had been interacting with the exchanges in an ongoing manner, taking regular feedback through the meetings of the inter-exchange market surveillance group and risk management group.

In specific market behaviour situations like highly volatile and apparently abnormal movements, specific communications have also been made to the exchanges directing them to look into specific areas to find out the reasons.

However, the NSE and BSE and the other exchanges have mostly informed Sebi that there were no irregularities or areas of concern as well as no major concentrations, circular trading or breach of risk management norms.

The report further claimed that although the exchanges have taken steps to establish surveillance and monitoring systems, it appears that they have not been able to develop effective level of surveillance and monitoring capabilities.

It went on to add that "in spite of the fact that the issue of augmentation of surveillance staff strength has been taken up by Sebi with the exchanges repeatedly, it is seen that exchanges have not been able to adequately staff their surveillance departments both in terms of numbers and professional expertise."

The preliminary investigations in the stockmarket crisis by Sebi revealed building up of large positions and concentrations by certain entities in specific scrips. However, "the exchange reports and responses never indicated these trends. This shows that the surveillance mechanism of the exchanges could not properly capture these concentrations."

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