1. Harshad Mehta Scam

19. • Used to buy stock at rock bottom prices and then
push it up
• Self-made man
• Media Savvy
• Used to buy stock at rock bottom prices and then push
it up
Ketan Parekh
Harshad Mehta
Comparative Analysis of Both Scams
• Hailed from the family of stock-brokers
• Shied away from media
• Banks involved in the scam
• Banks involved in the scam
• Instruments misused were Ready Forward Deal
and Bank Receipts
• Instruments misused were Pay Order and Circular
Trading
• Promoters of Companies were involved
• Promoters of Companies were involved
• Operated through close network of brokers
• Had wider network of brokers
• Foreign banks like Citibank, Standard Chartered
and ANZ Grindlays were involved
• FIIs like Credit Suisse, First Boston and JM Morgan
Stanley were involved
• SBI suffered Rs. 600 cr loss
• Bank of India suffered Rs. 130 cr loss
• Played with “Old Economy” stocks
• Played with “New Economy” stocks
• Scam occurred inspite of presence of SEBI
• Scam occurred inspite of presence of SEBI
Sources: http://flame.org.in/knowledgecenter/scam.aspx

20. Impact on Stock Markets and Indian Economy
● The immediate impact of these scams were
sharp fall in the share prices and indices
● Post Harshad Mehta Scam, markets lost Rs.
0.1mn crore loss in market capitalisation
● The Government’s liberalization policies came
under severe criticism
● Subsequently, these policies were put on hold
for a while
● SEBI, the securities market regulator,
postponed sanctioning of private sector mutual
funds
● The entry of much talked about foreign
pension funds and mutual funds became the
remotest possibility
● The Euro-issues planned by many
Cos. Were delayed
Sources: http://www.slideshare.net/
Indian

21. Measures taken by SEBI against scams
● Securities and Exchange Board of India (SEBI) was established in April ’88
● Established with an objective of protecting the rights of small investors and
regulating and developing the stock market in India
● Post Mehta Scam in 1992, the GoI passed “SEBI Act 1992” and conferred statutory
powers to it
Measures post Mehta Scam
• Suspended brokers acting as Directors and other office bearers of BSE, for alleged insider trading
• Imposed an additional 10% volatility margin on A Group shares as well as margins on ALBM and BLESS Schemes
• Imposed volatility margins on net outstanding sale positions of FIIs, financial institutions, banks and mutual funds
• Banned naked short sales in March 2001
• Reduced the gross exposure limit for brokers to 10 times the base capital for NSE and 15 times for other stock exchanges
• Rolling settlements system made compulsory
• Allowed banks to offer collateralized lending only through BSE & NSE, to increase liquidity
• Launched trade guarantee fund to guarantee all transactions

22. Measures post KP Scam
• Trading cycle was cut short from a week to a day
• The carry-forward system in stock trading called ‘BADLA’ was banned
•
Introduced forward trading in the form of exchange-traded derivatives
• Withdrew broker control over stock exchanges

23. Action Taken By SEBI
● While Mehta scam empowered SEBI to regulate markets more effectively, several
other scams forced it to ensure that markets operate transparently and efficiently
● However, post Mehta scam, several scams came to light, casting doubt on the
efficiency of SEBI as a regulatory body
● Although many reforms are introduced by SEBI, there remains significant lapses in
the law implementation and enforcement
● Certain areas wherein SEBI needs to think upon and take action
includes:
─ Bear/Bull Cartels
─ Insider Trading
─ Circular Trading
─ Uniform settlement cycle
● A few actions taken by SEBI were criticized of it being clueless about its
supervisory duties
● Its high time that market regulators implement appropriate measures else the
ghost from past will continue haunting the Indian bourses

24. Thank You