The Hindu Business Line : Panel to study derivatives trading

As more and more companies are coming out with initial public offers (IPOs), it is difficult, especially for the small investors, to assess their credibility, standing, etc. So, in the interests of investors the recommendation of the Primary Market Advisory Committee (PMAC) to grade all IPOs is welcome. But the question is whether it is to be made mandatory. SEBI has deferred decision on it pending presentation of a credit rating agency's experience on this issue. Perhaps when a credit rating agency grades IPOs, most of the investors will go by its guidance and, therefore, making it mandatory may become irrelevant. And dissatisfied companies could apply for revision or inclusion with relevant data.

A. Jacob Sahayam, Thiruvananthapuram

The Indian stock market has graduated very fast and now has one of the most robust systems, in both the NSE and the BSE. SEBI certainly deserves a pat for all the improvements, though certain issues still remain. Derivatives is a growing segment with a very high volumes, and the leveraged positions need to be continuously monitored. Some of the market gyrations can be traced to the happenings in the derivatives area and the expiry of contracts. Due to this, long-term investors lose out to short-term players. The panel needs to examine these aspects also.

Krithivasan Swaminathan, e-mail

Derivatives are becoming popular, thanks to the advantage of easy booking. Recently, DPs have fallen from the grace due to manipulation of `professional' criminals. The scourge of manipulation in the capital market cannot be eliminated unless personal greed is checked. To stem the rot, PAN, Demat account and bank account numbers should be obtained from the applicants in the form of a declaration. And should there be any irregularity, apart from levying a fine, the shares should be deferred and transferred to a separate special account and directly added to the company's profit in the year. It is useful if the company compiles the list of applications in alphabetical order. A retail investor should be allowed to subscribe to any numbers of shares only on production of PAN. Banks should not accept applications with multiple accounts from one address, and should be held responsible for apparently manipulated applications bearing benami names.

Difficulty arises because of the existence of PAN and non-PAN accounts in banks. Non-PAN accounts should be restricted to the minimum. If there is more than one application, the system should automatically reject the additional application. The same procedure may be followed in the case of joint applications.

DPs are used as conduits by unscrupulous individuals. If DPs do not detect benami accounts, they should be punished. Disgorgement order may be out of proportion. Their licenses may be cancelled for a short period of three months or so. This will ensure that they recommend only genuine applications.

SEBI should find ways to curb manipulations leading to scams where people with "get- rich-quick" attitude use benami accounts to amass wealth.

T. S. Sundareswaran, New Delhi

Of late the market is witnessing a spate of IPOs with tall claims from the hither-to unknown and small companies. The investing public, especially those who have no sufficient knowledge in investments, have to rely only upon the ads of the companies. To protect the interests of the investors, mandatory IPO grading is to be made compulsory.

SEBI should expedite the constitution of an experts committee, obtain its report on various aspects of the derivatives segment and implement the recommendations early.

Further, the PMAC's suggestion that the IPO grading by a rating agency be made mandatory (which is at present only optional) deserves serious consideration by SEBI and implemented soon without for the expert committee's report in the matter.

S. Nallasivan, Tirunelveli

Responses to Sticklish Issues dated February 12.

One peculiar feature of the current inflationary trend is that the reasons that normally cause inflation are not much in evidence now. Though the expected GDP growth is around 9 per cent, there is no alarming rise in circulation of liquid cash. Also, interest rates are not high.

The reason for the current high inflation could be only the soaring prices of essential commodities. Although the Finance Minister has disagreed with the view that forward trading in commodities is a reason, I feel that it is an important reason as it has a speculatory element. Forward trading and speculatory operations give rise to activities which lead to artificial scarcities. So, the sooner the Government prohibits forward trading, the better for price-stability and inflation control.

T. R. Anandan, Coimbatore

The 6 per cent-plus inflation, allowed to rise from the low of 3 per cent, is worrisome. The Government has blamed global crude oil prices for this and, recently, it attributed the price rise to supply-side constraints.

This can temporarily be remedied by economic palliatives such as reduction in Custom duty, import of foodgrains, ban on export of pulses, sugar, etc. But the fact is that prices have been rising not because of robust growth and an overheating economy but due to stagnation in the farm sector and agrarian crisis, resulting from the loss of self-sufficiency in foodgrains. The buoyancy in the manufacturing and services sectors is not seen in the farm sector. Reforming the farm sector by providing necessary inputs, such as easy credit, modern techniques of production, cheap fertilisers, gas, water and electricity, require tough decisions.

T. S. Sundareswaran,

New Delhi

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