The Investors’ Grievances Forum, a body that represents small investors, has blamed “faulty policies being implemented by SEBI” for the recent market mayhem.

In a letter to SEBI Chairman M Damodaran, the forum has particularly castigated the policies governing F&O market and called for an immediate course correction.

The forum has also demanded that Sebi, NSE, BSE and brokers compensate for the losses incurred by lakhs of small investors since the regulators have not left retail investors with any cushion against the market crash. “Indian stock market is different from overseas markets.

We have a substantial retail participation unlike the foreign markets where institutions/funds have a major presence. Retail investors have to be provided a security back-up against market crash,” the letter by the forum read.

Addressing mediapersons on Thursday, forum president and former MP Kirit Somaiya said the feeling among thousands of retail investors in Mumbai, Ahmedabad, Delhi and other major urban centres was that “they have been cheated”.

Mr Somaiya said the finance minister, Sebi chairman and the government kept boasting about the healthy economic growth when the market was cruising. “But when the Sensex crashed, there was no one to take responsibility,” he said.

“In Mumbai metropolitan region only, around 3 lakh small investors have lost between Rs 1 to Rs 5 lakh each in the market meltdown. On January 21 and 22, NSE and brokers unilaterally cut-off F&O positions of small investors without giving them any chance to keep their transactions operational. Brokers’ terminals went off during trading hours on both these days. This is not a small technical problem. There are systemic flaws that have brought this disaster upon the small investors,” Mr Somaiya said.

The forum has observed that no new purchase orders were accepted by the brokers from retail investors and only big investors and FIIs were allowed to purchase when the index level was 15000 or so.

“When the Sensex was around 15,000, many retail investors wanted to buy scrips of blue chip companies which were available at low rates. But they were not able to do so since the terminals of thousands of neighbourhood brokers stopped functioning. At the same time, domestic and foreign institutional investors, some high net worth individuals and companies were allowed to buy scrips,” he said.

Elaborating, Mr Somaiya said that in the cash transactions, period of two days (T+2) is given to the investor for settling his account but no such facility was given to retail investors who had put their money in the F&O market. As the market crashed, retail investors lost either their shares or cash which they had kept as margin with the brokers, he said.

“The forum wants to know who bought these margin shares and who are the brokers who sold them to square off the deals,” Mr Somaiya said. The forum has also held non-introduction of physical settlement in F&O segment responsible for market volatility and crisis. “Since on-line cheque clearing system is not in place, lakhs of investors who wanted to keep their deals alive by paying additional margin money were not able to do so before that particular day’s trading hours were over,” he said.

The forum has claimed that the composition of F&O market in India greatly differed from the F&O segment in other markets. World-wide, F&O is a specialised market where only mutual funds, insurance companies, and institutional investors put their money, the forum has observed. “But Sebi has failed to appreciate that the composition of F&O market in India is dominated by retail investors. It has failed to update its policies to keep up with this profile,” the forum has claimed.

Mr Somaiya also blamed Sebi for not keeping the margin percentage stagnant at 20 in the F&O market. Though the Sensex kept going from strength to strength, Sebi refused to raise the margin percentage gradually and soon after the crash hiked it to 50%, he pointed out. “Similarly, when F&O was introduced, the upper limit for trading in any scrip was kept at Rs 2 lakh. But even as the market size increased, this ceiling was not revised upwards,” he said.

Source : India Times

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