The Securities Validation & Guarantee Programme (SVGP), proposed to be introduced by SignAssure Services (India) Ltd, a joint venture of the Deepak group of companies and Kemark Marketing Group of the US, faces the uphill task of convincing insurance companies to provide cover for all participants and transactions under it.

SignAssure chairman AC Mehta told members of the Calcutta Stock Exchange in a presentation of the SVGP here yesterday that the insurance companies were not convinced yet of the amount of risks involved in a market where securities-related frauds were on the rise.

Quoting a report of the economic offences wing of Mumbai police, Mehta said the incidence of fake, forged and stolen shares had risen remarkably in 1996 to about Rs 200 crore from about Rs 70 crore in 1995. Both New India and Oriental Insurance, the insurers to the BSE and the NSE, were busy screening claims of investors against frauds.

The CSE members suggested that the cost of insurance for the SVGP be borned entirely by SignAssure as it could bargain for rebates in premium from the insurer. Mehta told members that the insurance companies were not yet prepared to provide cover for SVGP and the question of allowing rebates to the promoters of the project would be considered only if they agreed in principle to sanction risk cover.

Mehta argued that the SVGP certification about the validity of shares and transfer deeds and the elimination of bad deliveries and objections by registrar and transfer agents would reduce the cost of transactions on the bourses and filter out bad deliveries from the trade cycle at the introducing stage.

According to Mehta, a recent study conducted by Price Waterhouse showed that the cost to an investor per transaction on account of share transfer worked out to Rs 42 per trade and on account of bad deliveries it was another Rs 140-150 per trade.

Mehta explained that the SVGP would be an insurance-backed validation process for securities to check the bona fides of the seller as well as the genuineness and tradeability of the securities before they enter the trade cycle.

He said that the identity of the seller would be verified at the introduction stage and hence would give the introducing broker and the participants in subsequent trades in the same scrip the security that the documents in circulation are genuine.

CSE members found the SVGP concept good but felt that the project would serve a useful purpose only if all the stock exchanges participate and this was possible only if the Securities & Exchange Board of India framed a suitable guideline for all market participants that all trades done on the bourses would have to be backed by the SVGP certification process, including the registrars and transfer agents.

As for the costs involved in the SVGP project and the burden on the stock exchange and its members, Mehta said the costs were not yet final and subject to negotiation with the participants.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.