Pick the share you like at BSE’s clearing house

The audit itself was ordered after newspaper reports last July revealed that the clearing house has been unable to deliver shares to the Stock Holding Corporation of India Ltd. (SHCIL) weeks after it has paid for them. SHCIL, which is the custodian for all the major financial institutions (FIs), at one time had pending deliveries of a whopping Rs148 crores.

These were completed when the FIs threatened to stop doing business on the BSE. There were allegation that brokers were helping themselves to shares from the clearing house to make market deliveries. The clearing house itself blamed the BSE for increasing its work load by suddenly transferring several shares to the specified list without appropriate infrastructural back up.

Aneja Associates submitted its report to SEBI sometime in October last year, documenting in detail the scandalous lack of security, systems and records maintained by the clearing house. Four months after the report has been submitted, it has been moving from one Executive Director to another in SEBI, with no sign of the regulator ordering any action to clean up the mess.

SEBI, has similarly failed to initiate any action against the BSE for tampering with the trading system and inserting trades in the BSE computer in June, nor against promoters who were in cahoots with brokers in rigging up the prices of half a dozenscrips in May last year.

This time, however, The Indian Express has obtained a copy of the report submitted by Aneja Associates. The enormity of the auditors revelations has to be seen in the context of the role of the clearing house. A clearing house is responsible for completing settlements, accepting and making deliveries as well as payments of shares as well as money. It maintains records and matches up trades.

In case of exchanges which permit carry forward trades, it keeps custody of vyaj badla shares in high security vaults/compactors. By virtue of their function, clearing houses around the world are high security areas, with closely guarded vaults, security cameras and mirrors to monitor all entry and exit of persons and documents. The work area of the staff and outsiders is strictly segregated to prevent theft and misuse.

In contrast, the BOI Shareholding has its vaults open most of the time — the audit team demonstrated its dangers. In fact, the vaults even double up as a work areawith work desks and computers installed there. Broker members and their staff are free to walk into the vaults to resolve pending grievances. If that were not bad enough, there is no designation of specific persons to open/close the vaults.

The report says that even though entry to the BOIS office premises requires access cards, bags and briefcases are not checked, and the staff is not compelled to wear identity cards. Brokers representatives sit in the same work area to verify their deliveries.

The clearing house staff walks in and out of the premises often leaving share certificates unguarded on their desks. The report highlights the ludicrous absence of safety by pointing out that on August 13, 1998, a physical skirmish broke out within the clearing house, with the Brokers Staff Union members roughing up a broker in front of 30-40 people.