Securities and Exchange Board of India (SEBI)
May 29, 1992
The Presidents/Executive Directors
of all Stock Exchanges
Monitoring and Inspection of brokers
You would be aware about the recent revelations about the alleged involvement of a few member brokers of the stock exchanges in the reported unauthorised practices adopted in the market for Government Securities which in turn enabled them to influence trading in and prices of shares in the stock exchanges. In this connection you would recall that the stock exchange authorities are required to closely monitor the market and maintain a close watch on price movements in scrips and volume of business transacted therein, both in aggregate and individual brokerwise, so as to ensure that the market works in an orderly manner. This function of stock exchange authorities assumes greater importance in the context referred to above and especially when it was reported that a few groups of persons could raise the prices of certain scrips which were far our of alignment with their fundamentals and future prospects. The investors were tempted to enter into bargains at the higher levels and subsequently found themselves in quandry as the price levels at which they entered the market could not be maintained. The exchange authorities have however taken a limited view of their role and confined their management of the exchange to monitoring margins, payment and delivery. They have not looked into malpractices like price rigging and market manipulation.
In the light of above, the exchange authorities should initiate the inspection of the books of the member brokers who are associated with undue movements in prices of shares and exercise greater supervision on the trading on the floor of the exchange with a view to minimising the situations of price rigging and market manipulation. They should also call for the details from the brokers regarding names of clients and quantities purchased/sold by them and examine if there is an attempt to rig up the prices and/or to manipulate the market.
In case if there is an evidence to conclude that there is rigging and market manipulation, exemplary action should be implemented against member-brokers found to be indulging in such practices.
Please acknowledge the receipt of this letter.
Head-Secondary Market Department – I