Reforms that can save retail investors from the “Slaughterhouse” called Options Trading will affect Sebi’s income. Hotel Stocks and Ambani Wedding Economy, here’s your dose of juicy Gossip
Old Wine In New Bottle
There is a buzz in the market that Mrugank Paranjape, the former MD CEO of Multi Commodity Exchange (MCX) may get reappointed. Paranjape’s recent guest column in print media praising market regulator SEBI’s controversial T+0 settlement for the Indian markets has sparked speculation. Many in the markets believe that he was trying to flatter the current SEBI chief, perceived as the brain-child behind the T+0 legacy move. Incumbent MCX MD CEO PS Reddy’s ouster from the race was recently confirmed by the exchange’s chairman Harsh Kumar Banwala when he praised Reddy for his tenure and announced his last day in office. Credit should go to Reddy for changing the exchange’s technology vendor after much ado and delay, even though the transition was not smooth and marred by recurring glitches. Before Reddy came to MCX, the exchange was plagued with two biggest controversies: dubious advance payments to a London company for software that could not be used by MCX and data theft by Ajay Shah, Susan Thomas and Gang. Dubious trading from Sikkim on MCX by disguised Kolkata brokers was the feather in the cap of controversies at MCX under Reddy’s tenure. A scathing report by the auditor on the data theft at MCX has been published in detail in the media, which was a key in the regulator not granting an extension of tenure to the MD CEO prior to Reddy. Nobody knows what happened to the report and follow-up investigations. SEBI just moved on. But will it now package old wine in a new bottle and sell it?
Earnings Fiasco
Sebi’s recent letter to BSE to make good the payment of fees to the regulator based on the notional value of options traded has dealt a body blow to the exchange earnings. All the stock and commodity exchanges have to pay a certain fee based on turnover to the regulator (Rs 12 per crore) from their own earnings. So far, the National Stock Exchange kept paying the fee on notional turnover but the BSE provisioned for the same based on the actual turnover, which is far less and a measly amount compared to notional turnover. As a result, BSE has now been asked to pay more than Rs 96 crore arrears with 15 percent interest to SEBI for the past years. In effect, the NSE has to pay Rs 1000 crore and the BSE nearly Rs 100 crore. Already, the BSE stock is trading at a price-to-earnings multiple (PE) of 112, if you remove the one-time earnings gains from CDSL share sale. Similarly, the MCX shares are trading at a PE of over 250. While NSE has a huge scope of further cutting down its transaction charges, BSE cannot afford to raise the same too steeply since it would lose out on volumes if traders consider NSE as way cheap in terms of trading cost. Insiders say, BSE is now banking on Sebi to help it overcome the situation. There is buzz that Sebi is setting up a committee on derivatives market: maybe the solution for BSE lies in the hands of recommendations of the committee and play at Sebi.
SEBI’s Prosperity
It is an open secret that retail investors are losing their shirt trading in the derivatives market. But bringing reforms that can save retail investors from the “Slaughter House” called Options Trading will affect SEBI’s income and hence the theory of ‘conflict of interest’ suggests that the regulator may be least interested in curbing options trading – just playing to the gallery is a different thing. How does SEBI prosper at the cost of retail investors? Sebi collects fee from stock exchanges, brokers and clients, which is based on the turnover. It is now also getting 15 per cent interest from stock exchanges on the delayed fee. The fees of Sebi runs in several thousands of crores, which has also helped the regulator build holiday homes among the various other perks. Mainly piggybacking on its (fee-based) earnings from India’s derivatives market, SEBI now owns prime property in India’s plush business district – its two buildings in BKC are worth hundreds of crores. Thus, the US courtroom drama surrounding Jane Street’s lawsuit, which is a testimony of how India’s retail investors are bleeding red in the derivatives market, does not shake the conscience of Sebi? As per Sebi’s own reports, retail investors lost around $5.5 billion in two years trading derivatives but it does nothing to stop the rigged game of daily expiry of options in India’s derivatives market. Does SEBI value its own prosperity over the wealth of the nation’s retail investors?
Ambani Wedding Index
Stock market punters are eying the Ambani Wedding Index for betting on hotel stocks. Ahead of yet another big fat wedding in the Ambani family, which is to be held in July after elections, punters are stocking up on hotel company stocks. Why? Take a cue from Anant Ambani and Radhika Merchant’s pre-wedding bash. Grapevine says that the catering bill footed by Taj alone was to the tune of Rs 180 crore. Although the pre-wedding party lasted only for three days, nearly 1200 staff members from Mumbai’s five start hotels were deployed at least 15-20 days ahead of the event. Butlers, chefs, assistants, serving staff had to be available round the clock. Nearly 600 guests were kept in separate enclosures with heavy security arrangements – four guards per VVIP. Whoever among the 600 guests asked for whatever dish, it had to be served. When a senior member from the family order for Mango Ras and Puri at around 3 AM, the same was served at 3.42 AM. Anticipation is that if the pre-wedding was for three days, the wedding ceremonies could be at least a week long. Punters are expecting the few hotel stocks in the Ambani Wedding Index to surely rise due to March to September quarter earnings.
Maharashtra’s Political Khichdi
Two recent arrests by Mumbai’s crime branch of Chembur builder Lalit Tekchandani and Romi Bhagat has laid bare the infighting among heavy-weight politicians in one of the leading political parties. Tekchandani was arrested for duping flat owners but he is actually rumored to be a source behind flow of information regarding the foreign trips of a powerful officer on special duty and his spending. The revelations by a social media handle had become a pain in the neck of a state minister. After Tekchandani’s arrest the handle has gone silent. Romi Bhagat was a sophisticated fraudster, who could pull his stunt for too long by posing as high high-ranking officer of enforcement directorate (ED) and extort money from hawala operators, builders some front entities for politicians. Bhagat’s legendry contact list has the names of central government bureaucrats and IPS officers who were on his speed dial. Not only this but Bhagat is said to have owned licensed weapons. Nearly two decades ago, when Bhagat first started his racket, he weighed more than 100 Kgs. Over the years, as his operations became sophisticated, he lost weight and looked like a law enforcement officer. Grapevine goes that Bhagat’s arrest led to registration of a PE (Preliminary Inquiry) against a high ranking enforcement officer, who was called back to center.
An Energy Conclave that lacked energy
Recently, MCX held Energy Conclave 2024. The large number of audience out of the 80 to 100, were MCX employees. The hotel is said to have been booked for 250 attendees or for that many number of plates. The speakers were so insignificant in ranking that their names were not even mentioned by the exchange in the marketing brochure or the RSVP cards. No senior person from CME attended in person. CME MD who is based out of Singapore made a web appearance. It remains to be seen as to how the exchange justifies a budget of around Rs 60 lakhs.
Generosity To Undeserving?
JC Flowers ARC (asset reconstruction company that is a JV between JC Flowers and Yes Bank) is acting a little too generous with Nitesh Shetty, the promoter of Nitesh Estates? The ARC is planning to settle the debt of Nitesh Estates worth thousands of crores for a few hundred crores. In Bengaluru, the Cubbon Park police had booked Nitesh Estates for cheating Yes Bank and defaulting on loans. Like that there are several cases. But instead of taking Nitesh Estates to bankruptcy proceedings, JC Flowers ARC is showing its benevolence on promoters. Several others had approached JC Flowers with an offer to buy the debt or the mortgaged assets, but it refused to engage except Nitesh Shetty. This is contrary to the letter and spirit of the IBC and various decisions of the Supreme Court in debt recovery matters. The story of Nitesh Estates is replete with funds diversion from public listed companies and cheating public financial institutions. A simple Google search shows the illegalities (https://www.moneylife.in/article/sebi-orders-forensic-audit-on-nitesh-estates-suspecting-accounting-manipulation-and-diversion-of-funds/66436.html) and yet his connections allowed him to raise debts from various banks. Financial market insiders say that having a powerful father-in-law can help you pull a few strings.
Hinduja’s of Tax Haven
Not much information is available in public about Hinduja Group company AELLP while Indusind International Holdings is a Mauritius-based company, whose list of shareholders is shrouded in mystery. Both these companies have bid Rs 9850 crore for India’s Reliance Capital. The business of RCAP also involves handling the public since it has a major insurance play. The correspondence address for IIHL is Level 3, Ebene House, Hotel Avenue 33, Cybercity, Ebene, 72201, Mauritius. As is the culture of Mauritius, which is to just provide a tax base, several different companies are registered at the same address as can be seen from the Offshore Leaks Database. It further shows another entity Hinduja Global International linked to one Ajay Prakash Hinduja and registered in Bermuda, a British Island territory, which was part of the Paradise Papers leaks database. The database shows the company’s links to other Hinduja family members including Sanjay Gopichand Hinduja, Cayman Island, Prakash Paramchand, Monaco Switzerland. The Offshore Leaks database is said to have unearthed a global network of law firms and companies registered in obscure tax havens that are infamous for routing black money. The Insurance Regulatory And Development Authority has raised concerns over the structure of Hinduja’s bid for RCAP.
Hari Tibrewal’s Disappearing Act
Just few days ahead of the elections, Sebi chief Madhabi Puri Buch expressed her concerns towards price rigging in many small and mid-cap company stocks and promised action. But the blazing guns are silent after the fall in price of small and mid-cap stocks. Nobody has heard much about Hari Tibrewal and his gang, who were reported to have indulged in widespread manipulation of small and mid-cap company stocks via preferential allotments to overseas companies. Several media reports had laid bare the modus operandi, names of entities used to rig the stocks and persons behind it. Little work was left for SEBI to do. But the silence now is conspicuous. Also, after the initial action, the Enforcement Directorate, which was on a hot trial of Tibrewal and a few other market operators and people behind the Mahadev betting App, has gone silent.
Can Whistleblowers Trust Sebi?
Some of the global regulators seem to have acted against Invesco Mutual Fund after a whistleblower level serious charges of manipulation against the top brass of Invesco MF in India. But Sebi has moved at a snail’s pace after sending a show cause notice in November 2023. The whistleblower complaint had revealed a pattern that whenever securities held by a fund scheme faced rating downgrade or risk of adverse credit view, they were simply moved to another scheme with higher retail participation. An attempt was made to hide bad investments in some Indian schemes by transferring them into other global funds. The Indian schemes continued to buy bad papers. SEBI probe had revealed that Invesco India had undertaken several inter-scheme transfers (ISTs) between 2016 and 2021, specifically aimed at moving papers with ‘poor fundamentals’ into retail-oriented schemes at the time of heightened credit risk. SEBI had also probed Invesco for illegally moving ‘bad papers’ in a few fixed-income schemes to various jurisdictions to avert potential damages. Fund managers who were buying a security in one of their schemes were selling the same in another scheme they managed. Now Invesco has offered to settle the matter with SEBI. Legal experts are of the view that SEBI has a tough call if wants to start settling such grave matters of manipulation where it was the question of retail investor trust over Mutual Fund managers. Surely, whistleblowers are likely to lose confidence in the system.
