The principle and overriding function of the securities market regulator, The Securities and Exchange Board of India (SEBI) is to protect the interests of the investors in the securities market. The other functions, viz., orderly development and regulation of securities markets are secondary, in my view. However, there is overwhelming anecdotal evidence to indicate that the regulators have given precedence to market development and regulation over the principle objective of investor protection. There are many instances in past 3-4years alone to indicate this. In the episodes of IL&FS, Franklin Templeton, Yes Bank, Jet Airways, Karvy etc., the interests of the investors in these entities were compromised. Moreover, little efforts were made to ensure that prospective investors are given full disclosures about the risk and reward of investing in the securities of these entities.
Recently, we have seen repeat of this tendency. On Monday, the 7th
June 2021, evening, DHFL informed stock exchanges about the resolution plan
approved by the Mumbai bench of NCLT. It was clear from the resolution plan
that in the successful bid of Piramal Group “No value was attributable to
the equity shares as per the liquidation value of the Company estimated by
registered valuers”. Besides it was also made clear in the communication to
the exchanges that equity shares of DHFL shall be delisted upon completion of
the resolution.
Clearly, the resolution plan envisaged zero value for the shares
of DHFL Limited. Despite this the stock was allowed to be traded on Tuesday,
the 8th June 2021. To make the matter worse, it was allowed to rise
10% (the maximum permitted as per the applicable price band). Over 14cr shares
were traded on NSE alone and investors took delivery of over 9crore shares
valued close to Rs200cr. All this money will be lost. No broker warned the
investors on Tuesday. The exchanges did not advised the brokers to caution
their clients. SEBI did not asked the exchanges to suspend the trading. To
compound the mistake, the stocks continues to be traded on both the exchanges
despite the company formally informing the exchanges that the worth of equity
shares is Zero. About 5 million shares were traded on Wednesday also. To be
fair, many brokers did advise their clients on Wednesday.
Many “knowledgeable” investors in DHFL have been allowed to
unfairly transfer their risk to unsuspecting gullible investors in past two
days.
In this context it is pertinent to note that the model bye laws
prescribed for the exchanges require that—
“The Exchange shall provide adequate and effective surveillance
and monitoring mechanism for the purpose of initiating timely and pro-active
measures to facilitate checking and detecting suspected or alleged market
manipulation, price rigging or insider trading to ensure the market integrity
and fairness in trading. For this purpose, the Exchange may, from time to time,
apply, adopt, determine and implement various measures, mechanisms and requirements,
as may be provided in the relevant Regulations and as may be decided by the
Relevant Authority from time to time.”
It is therefore also the duty of the exchanges to act
proactively to ensure fairness in trading. In this case the exchanges could have
easily anticipated that some people have advantage of knowing the details of
the resolution plan. An analysis of trading data for Tuesday will clearly show
that the trading in DHFL was not fair. Not suspending the trading this stock is
even more unfair to “unaware” investors and traders.