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Preventing `punching errors' -- SEBI for new checking system

Our Bureau

MUMBAI, July 4

REACTING sharply to `punching errors' in various stocks over the past two days, the Securities and Exchange Board of India (SEBI) today called for the immediate introduction of an order verification system by the bourses.

``The system should verify quantity and price beyond certain limits. However, the limits for this may be prescribed by the stock exchanges,'' Mr D.R. Mehta, Chairman, SEBI, said in an informal chat with the media.

After ACC at Re 1, Zee at 50 paise, it was Reliance Petro being traded at Rs 300 and ACC at Rs 209.15 on the NSE, this time. The so-called error saw the Nifty move up `artificially' by almost 40 per cent in the first half of the trading session today. Th e trades were, however, annulled by the exchange.

The order verification system, as suggested by SEBI, would be implemented only in those 53 scrips were there are no individual circuit breakers in place.

``In other words, all those scrips which have options trading on them or are part of the indices on which index-based futures are allowed,'' Mr. Pratip Kar, Senior Executive Director, SEBI, said.

As the system calls for software changes, initially, exchanges would have to implement it at the administration level, officials said.

Of the two exchanges, the NSE has a `quantity freeze' system in place since inception. Officials said that the software would probably require minor modifications to bring it up to mark.

While market sources claim it to be a genuine human error, the regulator is in no mood to accommodate.

At a meeting with the NSE, BSE, CDSL and NSDL today, the capital markets watchdog said that anyone found guilty of `tinkering' with the system would be dealt with severely.

``This is blatant misuse of the system. We have asked the bourses to take stringent action against anyone attempting to tamper with the system,'' Mr Mehta said.

According to him, the action could involve deactivating of terminals, show-cause notices being issued or even the cancellation of a member's trading card.

The regulator also called for stock exchanges to further strengthen their vigilance and surveillance system.

In a bid to ensure smooth settlement under the new trading regime, SEBI today decided that pay-in should be effected before noon on settlement date, to ensure pay-out be released before banking hours on the same day.

The first pay-in and pay-out under the new regime is to take place on July 9.

The new VAR-based margining system under rolling settlement system was also discussed as some members felt it was too high. It was decided to review the same at the next Risk Management Committee meeting on July 13.

The regulator has also decided to issue a directive making it mandatory for corporates to credit dividend, bonus directly into the bank account of the beneficial account holders.

It was agreed that SEBI would issue a directive to stock exchanges and companies to use the bank account details furnished by the depositories for the distribution of dividends, etc.

`How can you hang us for typos?'

EVEN as the market regulator today tightened the reins to prevent misuse of the system in the new trading regime, brokers are crying foul over SEBI's suggestion of strict action against erring members.

SEBI's carte blanche to stock exchanges to the extent of cancelling a member's trading card has rattled many a broker's cage.

``These are genuine errors and occur almost on a daily basis in a broker's office. How can you not treat it as a typographical error,'' argued a leading broker.

A common perception in the broking community is that SEBI's decision to knock off price bands in scrips is responsible for the failure of the system to detect deals being put through at such abnormal rates.

``The regulator should have insisted on a rigid order verification system being in place before shifting to the new trading system,'' a broker said.