SEBI investigates unfair access to stock-exchange's trading-systems
The Securities and Exchange Board of India (SEBI) will initiate a fresh probe into allegations of brokers unfairly accessing algorithmic trading (AT) servers of the National Stock Exchange. SEBI had initially conducted an inquiry based on a whistleblower's claims that three brokers had illicit access to SEBI's AT servers. However, a SEBI-appointed technical-advisory committee observed that a dozen brokers were possibly involved.
Stock market scams in India
Since the early 1990s, there have been several massive scams that have rattled the Indian stock markets and have caused havoc on savings of millions of investors. Let's take a look at some of the most infamous ones via this timeline.
The Harshad Mehta Scam
Harshad Mehta was known as 'Big Bull' among traders for starting a trend of buying shares at a premium. He manipulated loopholes on inter-bank deals to secure short-term loans against government securities and earned crores in commissions. When the massive Rs. 4,000 crore scam was unearthed, share prices plummeted by 40 percent. Mehta was credited with the rise and subsequent crash of the stock-market.
The Ketan Parekh Scam
Ketan Parekh, by resorting to circular trading, borrowed hundreds of crores from multiple banks. He targeted smaller stock exchanges in Allahabad and Calcutta and bought shares in fictitious names; evidence of price-rigging was found in the ten stocks he dealt in. When Parekh's Rs. 800 crore scam became known, the markets lost Rs. 1,15,000 crore. He was imprisoned and banned from trading till 2017.
The Satyam Scam
From 2003 - 2008, the top management of software company, Satyam Computers, cooked up company books to inflate their sales, profits and showed non-existent bank balances of over Rs. 5,000 crore. Satyam Computers' founder and Chairman Ramalinga Raju admitted to this scam worth over Rs.14,000 crore to the SEBI. When the news broke, the IT company lost Rs. 10,000 crore as investors dumped shares.
The Sahara Scam
The Sahara Scam was unearthed in 2010 when a Chartered Accountant wrote to SEBI requesting an investigation into Sahara. Two Sahara group-companies had raised thousands of crores from 29.6 million investors in violation of SEBI regulations and companies act. In 2012, SC ordered Sahara to return Rs 24,000 crore plus interest. Upon failure to repay, Sahara Chief Subrata Roy was arrested in February 2014.
The Saradha Scam
A Ponzi scheme from Saradha group-companies had succeeded in collecting money from 1.4 million investors from West Bengal and Odisha as advance for plots and flats. The fraudulent scam worth nearly Rs. 10,000 crore collapsed in 2013. Many politicians and other well known personalities were arrested for their alleged involvement in it. The Central Bureau of Investigation has yet to conclude its investigations.
Downfall of one of America's largest corporations
Enron Corp., ranked as the 6th-largest energy company worldwide, declared bankruptcy in 2001. Enron had created several partnerships to hide debts/massive losses of $600 million. Enron's top executives were tried for fraud, thousands lost their jobs/life savings and Enron's stock price fell to pennies.
SEBI investigation into AT server scam
Algorithmic trading entails using electronic systems which execute thousands of transactions on stock exchanges in in less than a second. Allegations against brokers are with respect to co-location of their own servers on premises of the stock exchange, resulting in a time-and-speed advantage over others. SEBI has yet to determine the extent of brokers' gains; if found guilty, brokers may likely face suspension.
