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Ketan parekh scam

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  • Borrowed initially and then financed by giving bonds as collateralPay order route – while he faced liquidity problemsDot com boom all over the world where all ICE stocks were bullishVolumes and prices went upUnion budget of 2001 – increase by 177 pointsNext day – bear cartel – decrease by 176 point – targeted K-10 stocksThe sudden crash made SEBI undertake investigations Defrauding BOI of $30 million
  • etan's rise to fame occurred at the same time as the worldwide dot-com boom (1999-2000) and he relied primarily on the shares of ten companies for his dealings (now known infamously as the K-10 scrips).Ketan had large borrowings from Global Trust Bank, whose shares he was ramping up (so that he could get a good deal at the time of its merger with UTI Bank) – he got Rs 250 crore loan from Global Trust Bank, though Global Trust’s chairman RameshGelli (who was later asked to quit) repeatedly said that lending to Ketan was less than Rs 100 crore in keeping with Reserve Bank of India norms. Ketan and his associates got another Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank despite the fact that RBI regulations ruled that the maximum a broker could have got as a loan was Rs 15 crore.
  • RameshgelliGTB 250 crores
  • Due to various factors including the bursting of “New Economy” bubble and the subsequent downward trend in NASDAQ, Ketan Parekh and his cronies started borrowing heavily. The only option before Ketan Parekh and other members of the bull cartel was to recklessly rig the prices of shares upwards and then sell them. Initially, he and his cronies borrowed heavily from the banks but later switched to unofficial markets in Calcutta. Over 90 per cent of transactions in Calcutta are estimated to be unofficial, outside the exchange with no records and margin money. The financiers at Calcutta were too happy to lend huge amount of money to Parekh and his cartel at rates as high as 100 per cent.Because of liquidity crunch, Parekh and his cronies were finding it extremely difficult to further push the prices of stocks upwards. Taking advantage of this situation, the international bear cartel got together and started massive selling of “KP Stocks” in the hope of buying them dirt cheap at a later stage. The short selling was carried out with the active connivance of AnandRathi and other broker-directors of the BSE who provided sensitive information to the bear cartel about market exposure of Parekh and his cronies. The sudden selling of shares created a panic-like situation in the markets. Sensing a major meltdown, the big market players not associated with the bear cartel also started heavy selling of “KP Stocks.” Even the Madhavpura Cooperative Bank started offloading the shares it held as collateral from Parekh, fearing his inability to pay back the borrowed funds. All these factors further contributed towards the steep decline of the prices of “KP Stocks.”
  • Transcript

    • 1. http://indiatoday.intoday.in/story/2001-Ketan+Parekh+scam:+Stock+and+bull+story+/1/75489.html
    • 2. • Ketan Parekh• How it happened• How was it detected• Systematic Flaws• Implications http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 3. • Ketan Parekh is a former stock broker from Mumbai, India • He was convicted in 2008, for involvement in the Indian stock market manipulation scam in late 1999-2001 • Currently he has been debarred from trading in the Indian stock exchanges till 2017 • He was trainee of Harshad Mehta • Ketan Parekh can be best described as the Pied Piper of Dalal Street • Parekh came from a family of brokers which helped him to create a trading ring of his own http://indiatoday.intoday.in/story/2001-Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 4. • Formed a network of brokers• Identified and targeted 10 stocks• K-10 stock, KP Index• Zee telefilms went up from Rs. 127to Rs. 2330, Himachal Futuristic – Rs.Rs. 194 to 2553 http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 5. • Simple borrowing mechanism• Badla System http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 6.  Indigenous carry-forward system invented on the Bombay Stock Exchange Badla trading involved buying stocks with borrowed money. The stock exchange acts as an intermediary Interest rate determined by the demand for the underlying stock Maturity not greater than 70 days http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 7. • When stock prices were high, they were pledged with banks as collateral• No problems as long prices were rising• Pay order fraud • Issued cheques to MMCB drawn on BOI • Went to BOI, SBI, and PNB and got pay orders discounted http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 8. • Stock market crash of 2000 • KP started borrowing heavily • Attempted to rig the price upwards and later sell • But failed to do so • International bear cartel• IT department found discrepancies in sources of funds of KP• Routine market surveillance of 5 stocks http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 9. • Trading system lag of one week• Credit Check• High exposure allowed• Lack of records and margins at Calcutta stock exchange• Lending without proper collateral http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 10.  BOI complains to CBI-KP is arrested Global Trust Bank and Bank of India s merger failure SBIs loss was minimal. So it did nothing MMTC was liquidated ; KP paid its stockholders Rs.400 Crores. He still owes them Rs. 400 Crores http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 11.  One of the biggest Fall in BSE -700 points KP and other traders were banned from trading for 17 years Short selling was banned for 6 months. Badla system was banned All shares that were put as collaterals should be done so through NSE and BSE. Options and Index Future derivatives was introduced 10% additional deposit Margins. http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html
    • 12. -A small investor hit by KP scamin April 2001 http://indiatoday.intoday.in/story/2001- Ketan+Parekh+scam:+Stock+and+bull+story+/1/ 75489.html