Freak trade at NSE: ~3 lakh crore erased in 2 minutes
PALAKSHAH
Mumbai, 5 October
It happened in a flash: At 9.49 am, the S&P Nifty, the benchmark index
of NSE, plunged 900 points, or 16 per cent, within two minutes. The
crash, which wiped out over ~3 lakh crore ($58 billion), was caused by
a mere ~650-crore sell order by Emkay Global Financial Services.
The order, placed in 59 trades, including blue chips like State Bank
of India, ITC and others at a significantly lower price, pulled down
the index from 5,773 to 4,888. Nifty finally closed at 5,747.
Even as Sebi and NSE have initiated a probe, experts have raised
doubts over the risk management system, as the shallow depth of the
Indian stock market was exposed.
What was surprising was that the incident did not involve any
high-frequency or algorithmic trading on the part of Emkay, unlike
some stockspecific crashes like in the case of Infosys in the past.
NSE Senior VP Ravi Varanasi said: "There was no technical glitch. It
was a normal market order." He clarified alarge order was placed
erroneously and trading was not halted for a longer duration, as
required under the norms, because the entire market could not be made
to suffer.
Rules say trading should be halted for an hour if there is a fall of
10 per cent in the Nifty or Sensex before 1.00 pm and for 30 minutes
if the limit is breached between 1 pm and 2:30 pm. These norms are
similar if indices rise/fall by 15 per cent and 20 per cent. Today,
after the crash (9:49 am-9:51 am), NSE halted trade for less than 15
minutes, before resuming at 10:04 am.
Brokers said NSE might be right in not halting trade for longer, as
disturbing normal market trading due to an erroneous trade could have
caused more damage. NSE controls 90 per cent of India's (average
daily) equity derivatives market, worth ~1.5 lakh crore ($28 billion).
Emkay's sell order took place in the cash market, which has an average
daily volume of around ~15,000 crore. Of this, delivery-based trading
could be much less, at 50 per cent. This absence of depth is being
cited as the main reason for the crash.
Though the brokerage did not give any statement, BSE and NSE sources
said the partpayment of the penalty was made by evening.
Market experts estimate the loss to the company at around ~70 crore –
almost 50 per cent of its net worth as of March 2012 – on account of
loss of value on shares sold and the penalty due to such transactions.
Emkay's share price plunged 10 per cent to hit the lower circuit and
remained there all day to close at ~31.10 (market cap ~75 crore).
The company, founded in 1995 by two chartered accountants,
Krishnakumar Karwa and Prakash Kacholia, is primarily engaged in the
broking business and has a network of over 400 retail outlets across
the country.
Market recovers but the incident exposes shallow depth, flaws in risk
management system RECENT FLASH CRASHES
IN THE US May 6, 2010: Dow Jones index saw a flash crash of
1,000 points
Aug 1, 2012: US-based Knight suffered a loss of
$440 million after its rogue algorithm caused major disruptions in
shares prices of 148 companies on the NYSE.
IN INDIA Jun 1, 2010: Reliance stock fell 20% and also pulled down the
Sensex by 600 points to a punching error
Oct 26, 2011: BSE had to annul all trades on 'muhurat day' in 2011 due
to extraordinary volumes
Apr 20, 2012:Nifty futures dropped over 300 points after stop losses
got triggered. The same day shares of Infosys also witnessed a
momentary drop of 20%
Oct 5, 2012: Erroneous orders worth over ~650 cr by Emkay triggered
a900 points drop on the Nifty
Part of penalty burden to be borne by insurer
|New India Assurance, is the insurer for Emkay Global, may have to
bear part of the penalty due to today's 'freak trade'. According to
Sebi norms, a cover of at least ~5 lakh has to be taken by brokers as
professional indemnity cover. Also, if any individual goes to court
claiming he incurred losses due to the trade generated, the insurer
would have to bear part of that cost too
Tribunal upholds Sebi order on Pyramid Saimira directors
BS REPORTER
Chennai, 5 October
The Securities Appellate Tribunal (SAT), Mumbai, has dismissed an
appeal by four directors of Pyramid Saimira Theatre against the order
of Securities and Exchange Board of India (Sebi) restricting their
market access and imposing penalities for violation of Sebi laws.
The appeal was filed by NNarayanan, K Natarajan, KS Kashiraman and G
Ramakrishanan, who were directors of Pyramid Saimira Theatre, which
engaged in the business of film distribution and running of cinema
theatres.
Sebi said the parties were found guilty of violating regulations three
and four of the Sebi(Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003.
It was alleged the annual financial results of the company for 2007-08
reported to the stock exchanges contained inflated figures of revenue,
profits, security deposits and receivables, all relied upon by
investors for making investment decisions.
While the appellants argued they were either providing their expertise
in one field, or were independent directors, SAT said: "With the
changing scenario in the corporate world, the concept of corporate
responsibilities is also rapidly changing. The director of a company
cannot confine himself to lending his name to the company but taking
light responsibility for its day-to-day management." It added, "While
functions may be delegated to professionals, the duty of care,
diligence, verification of critical points by directors cannot be
abdicated. The directors are expected to have a hands-on approach in
the running of the company, and take up responsibility not only for
the achievements of the company but also the failings thereto."
Government presses RBI on new bank licences
SOMASROYCHAKRABORTY& MANOJIT SAHA
Kolkata/Mumbai, 5 October
The message to the Reserve Bank of India (RBI) is loud and clear from
the corridors of North Block — frame the final guidelines on new
banking licences and allow private entities to set up new banks as
soon as possible..
After the change of guard in the finance ministry, with P Chidambaram
taking charge, it has asked RBI to expedite the process, people
familiar with the development said.
Apart from the minister, say central bank sources, Raghuram Rajan, the
new chief economic advisor, has spoken similarly during his
interaction with the RBI brass. However, even if RBI issues the final
norms this month, allowing business houses to apply, the number of
banks is unlikely to increase anytime soon, sources said.
For, the central bank is yet to set up a committee for examining such
applications. "The committee will be formed only when final guidelines
are in place. It will then scrutinise the applications. So, don't
expect anything to happen for the next 12-18 months," said a source.
The government, however, is determined to set the ball rolling in this
season of reforms. RBI had said it was awaiting amendments in the
Banking Regulation Act before issuing the final guidelines. RBI wants
more power, such as dissolving a bank's board, before it allows new
entrants. However, "the ministry said the Act will be amended but it
should not hold RBI from forming the guidelines", said another source.
Also, there were opinions that at least non-banking finance companies
(NBFCs) be allowed to set up banks till the Act was amended.
Interestingly, RBI has asked the government to extend the tenure of
one of its deputy governors, Anand Sinha, by a year. Sinha will
complete his two-year term in February 2013 and heads the department
of banking operations and development that will issue the final
guidelines on new banking licences.
Pranab Mukherjee, the former finance minister and now the country's
President, had said in his 2010-11 Budget speech that companies and
business houses would be allowed to set up new banks. RBI released
adiscussion paper on the entry of new players in August 2010. A year
later, it issued the draft guidelines. In July this year, it released
the gist of the comments it had got on the draft norms.
RBI had suggested the initial minimum capital must be ~500 crore; it
received feedback that recommended ~1,000 crore as the minimum. It
also wanted new banks to be listed within two years and have a fourth
of all branches in hitherto unbanked rural centres.
But NBFCs and federations suggested only 15 per cent of branches
should be in rural areas and asked the central bank to extend the
listing deadline, to four to five years.
FM, CEA want final guidelines soon; observers sceptical on any quick
entry February 26, 2010
Former finance minister and now President Pranab Mukherjee announces
in his Budget speech for 2010-11 that companies and business houses
will be allowed to set up new banks August 11, 2010
Reserve Bank of India releases discussion paper on entry of new banks
in the private sector December 23, 2010
Reserve Bank of India releases gist of comments from the feedback on
the discussion paper August 29, 2011
Reserve Bank of India releases draft guidelines for licencing of new
banks in the private sector July 10, 2012
Reserve Bank of India releases gist of comments from the feedback on
draft guidelines TIMELINE
'Mandatory reference of M&As to CCI good for consumer protection'
BS REPORTER
Mumbai, 5 October
The mandatory reference of mergers and acquisitions (M&As) in the
financial sector to the Competition Commission of India (CCI) will be
good for consumer protection, as it will check monopolistic
tendencies, senior bankers said.
The Cabinet had on 4 October, cleared amendments to the Companies
Bill. One of the amendments suggested other regulators should
mandatorily refer matters impinging on 'competition' to the CCI.
According to senior bankers and experts, the Reserve Bank of India
(RBI), the regulator for banks and non-banking finance companies, is
doing a good job in improving customer services and protecting
depositors' interests. They said the system is evolving to have
specialised bodies to check monopolistic tendencies, they added.
Maintaining financial stability, one of the key responsibilities of
RBI, and monopoly are two different things, said Rajesh Mokashi,
deputy managing director at rating agency CARE.
According to a public sector executive who did not wish to be named,
the new move will go a long a way in consumer protection. It will be
useful for an outside body to study the in-depth market implications
of any M&A in the financial sector, he added.
While issues of monopoly and consumer interests get focus, An official
with the Indian Banks' Association, however, cautioned we might see a
turf war among various regulators, as much of the work could involve
interpretation.
Irda lauds rise in insurance FDI limit
PRESS TRUST OF INDIA Hyderabad, 5 October
The increase in the foreign direct investment (FDI) limit in the
insurance sector might attract ~30,000 crore that the industry
requires over the next five years, the Insurance Regulatory and
Development Authority (Irda) has said.
A day after the Centre announced its decision to allow up to 49 per
cent FDI in insurance, Irda Chairman J Hari Narayan said the move was
essential as inflows are necessary for the sector to grow at 11 to 12
per cent yearly. "It (the FDI) will give a boost to the sector. And it
is required any way. Otherwise, we don't have required capital for the
insurance sector," he told PTI. "If the insurance sector has to
double, then it would require at least ~30,000 crore (in the next five
years)," he added.
The decision was taken by the Union Cabinet yesterday. The government
also gave the green signal to foreign investment in pension funds,
saying the FDI limit could go up to 49 per cent in line with cap in
the insurance sector. According to Irda, the sector constitutes around
4.5 per cent to the gross domestic product (GDP). Last year, the total
premium collected was ~2.83 lakh crore.
With the increase in the FDI limit, the percentage of contribution
from the sector to GDP might also go up, he said. "This will also
increase the sector share in GDP. If GDP also rises, then the
percentage may remain marginally high," he said.
The premium income of the general insurance industry, comprising 21
private and four public sector insurers, stood at ~27,942 crore in the
first five months of the current financial year. It was 18 per cent
higher than ~23,748 crore in the corresponding period in 2011-12.
However, the premium income of life-insurance industry declined 15 per
cent to ~34,358 crore in the first five months of the current
financial year, compared with ~40,654 crore in the same period last
year.
Says increase could attract ~30,000 cr that sector needs over the next
five years
FM to meet CBDT brass on Monday
VRISHTI BENIWAL
New Delhi, 5 October
Finance Minister P Chidambaram is to have a review meeting with
officers of the Central Board of Direct Taxes (CBDT) on Monday.
This comes in the wake of muted direct tax collections and the Kelkar
panel stating Budget 2012-13 had overestimated the tax target for this
financial year.
Officials are working hard to prepare themselves for the meeting with
the minister, known to have an eye for detail. Chidambaram took a
similar meeting with officials from the Central Board of Excise &
Customs today.
So far this financial year, direct tax collections have been subdued,
owing to sluggish economic and industrial growth. Gross direct tax
collections increased just 6.5 per cent to ~164,413 crore in
April-August, against ~154,361 crore in the same period a year before.
The muted growth could also be attributed to low corporate tax
collections in these five months.
The minister is likely on Monday to assess the revenue situation and
discuss ways to meet the Budget estimate on direct tax collection, of
~5.7 lakh crore this financial year.
The meeting also assumes significance in the backdrop of the Shome
panel report on the General AntiAvoidance Rules (GAAR) and
retrospective taxation of indirect transfer of Indian assets. The
latter report is likely to be made public shortly, for comments.
Earlier this week, the minister had said the report would be released
as soon as it was examined by the ministry. Based on the panels GAAR
report, the finance ministry will make changes to the guidelines. The
report has proposed deferring the rules by three years.
In a report released last month, the Vijay Kelkar committee had
recommended the government prune its subsidies, check Plan
expenditure, raise at least ~30,000 crore through disinvestment this
financial year and shore up the tax-gross domestic product ratio to
ensure the Centre's fiscal deficit could be reined in at 5.2 per cent
of GDP this year. Else, it warned, the deficit could total 6.1 per
cent of GDP, against the Budget estimate of 5.1 per cent. The Budget,
it said, had overestimated tax receipts by ~60,000 crore and
underestimated subsidies by ~70,000 crore.
CBDT chairperson Poonam Kishore Saxena, all members of the board,
joint secretaries, and the director general of income tax (systems)
would attend the Monday meeting. All these officials, with their
juniors, have been asked to come to work on Sunday.
Finance Minister P Chidambaram's ( pictured )meeting comes in the wake
of muted direct tax collections and the Kelkar panel warning
Times Group may go for an IPO 'in the long run'
BS REPORTER
New Delhi, 5 October
Bennett, Coleman and Company (BCCL), the media conglomerate that owns
The Times of India newspaper, along with several other entities across
the print and electronic media, may go public to increase its
television and internet business, a group promoter told The New
Yorker.
"In the long run, we might go public and use the funds to acquire TV
stations," said BCCL Managing Director Vineet Jain. "We don't need the
money to grow publishing, but we need it to grow television and
internet," Jain was quoted as saying.
Responding to an email seeking comments, Satyan Gajwani, chief
executive of Times Internet, said, "There is no such plan at the
moment." An email sent to Ravi Dhariwal, chief executive (publishing),
BCCL, did not elicit any response.
The New Yorker profile, titled Citizens Jain ,a take on
Citizen Kane ,a 1941 Hollywood classic on media baron William Randolph
Hearst, offered a glimpse into the financials of the privately-held
behemoth. The article also analyses the Times Group's innovative
business model which involves advertorial supplements, adfor-equity
deals and aggressive ad sales. "Sameer and Vineet Jain make no
pretense that what they do is a public calling. Rather than worry
about editorial independence and the wall between the news room and
the sales department, they propose that one secret to a thriving
newspaper business lies in dismantling that wall," the article read.
In its annual report for the year ended March 2011, BCCL had stated on
a standalone basis, its revenue was ~4,004 crore, while the turnover
under the media and real estate segments was ~4,469 crore. The report
in The New Yorker stated the groups annual revenue was about $1.5
billion (about ~8,000 crore).
"The pre-tax profit margin of BCCL's newspapers is a remarkable 25 to
30 per cent. The company commands half of all English language print
advertising…a third of TV news channel ads and almost a quarter of all
radio and web ads," the article stated, adding, "The company has no
debt." In comparison, the Subash Chandra-promoted Zee Entertainment
recorded revenue of ~2,204 crore and a net profit of ~489 crore in
2011-12. Its market capitalisation stood at ~18,700 crore, a valuation
of about 8.5 times the revenue. If BCCL gets such a multiple in the
stock market, it could be valued at ~70,000 crore, and a 10 per cent
stake sale would fetch ~7,000 crore. Only a handful of private
companies, such as DLF, Reliance Power and Tata Consultancy Services,
have raised more than ~5,000 crore through initial public offerings in
the Indian market.
BCCL's group company Entertainment Network (India), which operates the
radio business, has market cap of ~1,136 crore. Analysts say the
profiling by the magazine, whose readership is largely based in the
US, suggests the public issue could be at an exchange that values
internet and new media businesses better. TRACKING THE TIMES
~4,004
crore
BCCLs revenue for the year ended March 2011, as reported by the company
~4,469
crore
BCCL's turnover under media and realty, according to a company report
$1.5
billion (~8,000 crore)
BCCLs annual revenue stated in The NewYorker article
~1,136
crore
Market cap of BCCL group company Entertainment Network (India)
Commodity markets may see slew of changes with new Bill
RAJESH BHAYANI
Mumbai, 5 October
Once again yesterday the Union Cabinet approved the Bill to amend the
Forward Contracts (Regulation) Act giving more powers to the commodity
futures market regulator, Forward Markets Commission (FMC). The Bill
is yet to be passed by parliament, which will not be an easy task.
However, if it is passed it will pave the way for more instruments
like indexbased trading and options trading to enter the market.
The Cabinet had cleared this Bill in the past several times. The first
instance was as far as five years ago. But then things turned
volatile. Two parliamentary standing committees and an expert
committee headed by Prof Abhijit Sen, member of the Planning
Commission, gave their reports approving the Bill and at one time an
ordinance was also issued to implement the changes but nothing worked
— the Bill never got through parliament.
However, this time around, the market is optimistic the Bill will see
the light of day. Even FMC chairman Ramesh Abhishek said, "The public
perception about the market has improved a lot this time." If the
government does get the Bill passed in parliament, one could say the
commodity futures market is set to enter anew growth orbit.
If the Bill is passed in parliament, FMC will get powers to permit
derivative trading in indices and options in commodities and indices
like in the futures and options (F&O) segment in the stock exchanges.
This will give it more depth and volumes. Options are the cheapest
instruments to hedge commodities. The buyer of an option will risk
only the premium amount. For example, an importer of edible oil enters
into a contract to import oil with an overseas supplier, delivery
comes after a month or so and market situation at that time is not
known. In that case he can buy the put option and protect the down
side. Now, he has to sell the quantity in the far month futures. In
several commodities, far month futures do not have enough breadth.
"The Bill once passed will pave the way to introduce a new hedging and
price risk management, bring about better price discovery and create
Indian benchmark prices for commodities, which are widely produced or
consumed in India. New hedging tools, such as options and indices,
besides new intangible products, which are needed by the Indian
commodity market participants, can be introduced," said Shreekant
Javalgekar, managing director (MD) and chief executive officer (CEO),
MCX.
Index-based derivatives will attract even those investors to the
market who are currently restricted to gold and silver. Exchanges have
floated indices for metals, agri commodities, energy and overall
indices. Index-based derivatives and options could be introduced in
the first phase. These will result in huge increase in volumes. In the
equity markets too, derivatives form 90 per cent of total volume.
FMC is already sitting on a number of draft regulations for the trade
and intermediaries, including members whom it cannot regulate directly
now.
Dilip Bhatia, MD & CEO, ACE (Kotak-anchored exchange), said, "The Bill
once cleared by parliament will be amajor boost for commodity futures
trade as a stronger regulator will be able to introduce more
instruments, broad base participation as banks and financial
institutions/mutual funds can also be allowed and will be able to
control illegal dabba trading, which will help exchanges to bring
volumes. All these will provide more liquidity and depth to the
market."
Despite not being able to get Parliament's nod in the past, this time,
the market feels the Bill will see the light of day
Employment exchanges to broaden ambit
BS REPORTER
New Delhi, 5 October
Employment exchanges are to also become placement agencies for
contract workers, in an amendment to the Employment Exchanges
(Compulsory Notification of Vacancies) Act, 1959.
The definitions of 'employee' and 'employer' are being broadened, to
include contract labour which has worked for more than 240 days in a
year. The proposed change was approved by the Union cabinet yesterday.
This would also apply to the plantation sector, previously excluded
from the need to notify vacancies.
State legislatures are to be exempted from notifying vacancies, to
bring these at par with Parliament in this regard. Also exempted would
be units employing 10-24 workers in the private sector; however, these
would have to furnish employment returns.
Another amendment would oblige employers to intimate the result of a
selection within 30 days to the exchange. At present, this provision
only exists in the rules to the Act; employers seldom follow it,
despite repeated reminders by the exchanges, the note prepared for the
cabinet said. The Live Register gets inflated on this account.
The title of the Act itself is to be changed to Employment Guidance
and Promotion Centres (Compulsory Notification of Vacancies) Act, 1959
.
The note said the focus of the Act would now be on vocational guidance
and career counselling, besides registration and placement.
There will nowbe more reporting rules for employers and part of
contract labourwill also be included
--
.
-
CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
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