SAFETY OF THE MARKET

SAFETY OF THE MARKET

One of the objectives of the Exchange is to promote and inculcate honourable and just practices of trade in securities transactions and to discourage malpractice's.

The surveillance function at the Exchange has assumed greater importance in the last five years. The Securities and Exchange Board of India (SEBI) had directed the Stock Exchanges in August 1995 to set up a separate Surveillance Department with staff exclusively assigned to surveillance functions. The Exchange has accordingly set up a separate Surveillance Department to keep a close watch on price movement of scrips, detect market manipulations like price rigging, etc., monitor abnormal prices and volumes which are not consistent with normal trading pattern and monitor the member-brokers’ position to ensure that defaults do not occur. This Department which is headed by a General Manager, reports directly to the Executive Director.

The Surveillance Department monitors exposure of the members on a daily basis . It also scrutinises the prices and volumes of the scrips on a daily basis.

As per the guidelines issued by SEBI, the Exchanges are required to apply daily Circuit Filter of 8% on scrips quoting above Rs. 20. However, in respect of scrips quoting below Rs. 20, the Exchanges are free to set their own circuit filters. The Exchange has accordingly prescribed 8% circuit filters for scrips quoting above Rs. 10/- but below Rs. 20, and for scrips quoting upto Rs. 10/-, daily and weekly circuit filters are 25% and 50% respectively. As directed by SEBI, the circuit filter limit in 200 scrips, which are commonly traded and jointly identified by BSE and NSE and scrips which are under the Compulsory Rolling Settlement, has been relaxed to 16% with effect from July 3, 2000. In this connection, it has been decided that if a scrip touches 8% circuit filter band in either direction, the circuit filter would be relaxed by another 8% in that same direction. There is a cooling off period of half an hour before the circuit filter is relaxed. The circuit filter for a scrip is relaxed only once in each direction in a day. In case the circuit filter in a scrip is hit in last half an hour of trading, the circuit filter in the scrips is relaxed after cooling period of 15 minutes instead of half an hour. The imposition of circuit filters on scrips ensures that the price of a scrip cannot move upward or downward beyond the limit set for a day and a settlement.

The large variation in the prices as well as the volumes of the scrips are scrutinised and appropriate actions are taken. The scrips which reach new high or new low and companies which have high turnover are watched. Also the prices and volumes in the newly listed scrips are monitored. In case certain abnormalities are noticed, then circuit filters are reduced to make it difficult for the price manipulators to increase or push down the prices of a scrip within a short period of time. The Exchange imposes special margin in the scrips where it is suspected that there is an attempt to ramp up the prices by creating artificial volumes. In cases where the abnormal movements continue despite the aforesaid measures, trading in the scrip is suspended.

Detailed investigations are conducted in cases where price manipulation is suspected and disciplinary action is taken against the members concerned, if warranted. Where any scrip has been suspended for more than three days, a detailed investigation report is prepared and sent to SEBI for further investigation/action, if any.

The Exchange has developed an On-line Real Time (OLRT) Surveillance System which has been commissioned from July 15, 1999. Under this system, alerts are generated by the system on-line, in real time, based on certain preset parameters like the price and volume variation in scrips, members taking unduly large positions not commensurate with their financial position or having concentrated position(s) in one or a few scrips, etc.

This system includes databases such as company profile, members’ profile and historical database of turnover and price movement in scrips, members’ turnover, their pay-in obligations, etc. The system generates alerts on the basis of pre-set parameters during the trading hours and corrective action based on further investigations is taken in such cases.

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