Against the earlier structure of collecting the information on abnormal activities and passing it on to the investigation teams for further action, the SEBI surveillance system is now compiling and analysing the information on its own, for fast action, including passing interim orders to prevent frauds.

"We have done a lot of groundwork and rigorously trained our surveillance staff. Now, we are in a position to track the entire chain of stock movement and cash flows in a market manipulation. With the help of alerts generated by our surveillance system, we have even reached a level where we can prevent serious manipulations from taking place," the SEBI Chief General Manager, Surveillance, Mr R. Ravichandran, said.

With the active coordination of depositories, the market watchdog has developed an effective software tool that tracks the stock movements on a regular basis and provides timely alerts on abnormal activities, he told Business Line.

"The way a bank account provides spending patterns, lifestyle and psychology of an accountholder, the flow of stocks in a depository participant (DP) account gives enough indications on the nature of transactions of the investor, whether individual or institution. We are now in a position to track all the related patterns by analysing the stock movements in DP accounts and the associated cash flows," Mr Ravichandran said.

According to him, the manipulators invariably resort to off-market transactions in the process of their operations. "But a close watch on the DP accounts will give enough clues that a manipulation is brewing. We are now constantly tracking all significant developments in the companies and their corporate announcements and relate them with their stock movements either prior to such developments or afterwards, both in volume and value terms. We are also keeping a close watch on stock advices being provided by the media, both electronic and print, and the associated stock movements."

The SEBI surveillance department has prepared a huge database of manipulators, both established and suspected, and their associates in different layers of the market. The list includes stockbrokers, clients, market intermediaries and promoters of listed entities.

" The Integrated Surveillance System that is under implementation, which functions on a real-time information flow, is going to further strengthen the regulator in early detection and prevention of market manipulations," Mr Ravichandran said.

The Securities and Exchange Board of India (SEBI) Chairman, Mr M. Damodaran, on Saturday indicated that a new mechanism for stock lending will be introduced soon by the regulator.

Speaking at a workshop for financial journalists here he used an analogy from football ground: "We are in the penalty box, we need to take a shot". But he deliberately stopped short giving out a definite timeline.

The recent margin calls in May and December this year and its negative impact on the stock prices caused by additional selling pressure at a time of short-term liquidity crunch at broker and investor levels has brought the focus back on the need of a legitimate lending mechanism. After the 2001 securities scam, earlier system (ALBM) discontinued IPO grading.

Mr Damodaran further said that the SEBI board will also take a view, in March 2007, on the suggestion of its primary market advisory committee recommendation of making grading of IPOs compulsory. Admitting that this is not done in any developed markets, he said that absence of precedence would not be a deterrent for the regulator to take a serious look at the interest of the investors. Early this year, the SEBI had made such grading only optional.

e-filing by corporates

The SEBI chief further announced that an e-filing system by the listed corporates will be introduced from January 1, 2007. "All disclosures and announcements will have to be made on this new site," he added. The new site would be jointly hosted by the NSE and BSE. However, Dr T.C. Nair, whole time director of SEBI, clarified that for the companies, which might find it difficult to migrate to digital disclosures, an extension of time could be allowed till April 1, 2007. An announcement is likely to be made shortly on the issue.

SEBI Act amendment

The proposed changes in the SEBI Act to increase the power of the quasi judicial body in certain areas such as penalties/fines may not come about before "the middle of the next financial year". "The legal and legislative process is now being taken forward through its usual course," Mr Damodaran said.

For Information, The SEBI's role is as follows

This is with reference to "SEBI moots super self-regulatory organisation" (Business Line, December 17). Whether it is the `disgorgement order' or the move to accept and recognise the offer of `super self-regulatory organisations,' SEBI's initiatives have to be complemented. The man at the helm, Mr M. Damodaran, deserves praise. India today is a thriving financial market and the psychology and the behavioural aspects of the market participants are strikingly different from those of developed economies. Actions by the regulator will have to be punitive and swift to check the general tendency to not comply with laws. Dithering can shake investor confidence.

Depositories to block securities in demat accounts till shares get listed on SEs

SEBI move

Pre-listing deals will be barred by making it compulsory on the part of "depositories to block or freeze the securities in demat accounts of the allottees till the designated stock exchange and the issuer confirm to them that listing and trading permissions have been granted by all stock exchanges," SEBI said.

Mumbai , June 19

SEBI on Monday initiated measures to stop pre-listing deals in IPOs by recommending amendments in regulations to make it mandatory for depositories to block the securities in demat accounts of investors till the shares are listed on stock exchanges.

The move comes in the wake of the recent IPO allotment scam, which saw manipulators cornering large number of shares allotted in fictitious names, through grey market or off-market deals.

Pre-listing deals will be barred by making it compulsory on the part of "depositories to block or freeze the securities in demat accounts of the allottees till the designated stock exchange and the issuer confirm to them that listing and trading permissions have been granted by all stock exchanges," SEBI said.

This was suggested in a discussion paper on `Measures to check excess dematerialisation of securities and pre-listing grey market in securities issued in IPOs', issued by SEBI today.

The proposed changes will be introduced through amendments in the SEBI (Depositories & Participants) Regulations, 1996.

Significantly, the regulator also suggested further steps to tackle the malice of "excess securities" i.e.; dematerialisation of shares in excess of issued capital of a listed company.

These include putting certain responsibilities on the depositories, issuer, its registrar and the depository participant to ensure that securities are not dematted in excess of listed/issued capital.

SEBI said despite taking several steps in the past, the problems arising out of "excess demat" have

not been completely resolved.

SEBI has also suggested regulatory amendments to slap penalty up to Rs 25 crore on those responsible for issue of excess securities.

A key feature of the proposed changes is that it put the entire onus on checking the pre-listing transactions on the depositories viz., the National Securities Depository Ltd and Central Depository Services Ltd. The proposed amendments will cover: (1) capturing of distinctive numbers in the depository system; (2) casting responsibility of the depositories to obtain the confirmation from the issuer and the designated stock exchange regarding grant of listing permission, before permitting dematerialisation; (3) casting responsibility on the depository to block the securities in the demat account of the beneficiary owner till trading permission is granted by the stock exchanges, in case of fresh issue of securities and (4) casting responsibility on the depositories to reconcile records of issued, listed, and dematted securities, the SEBI paper said.