BSE gets nod for mandatory auction of fake shares

Friday, August 1 1997

BSE gets nod for mandatory auction of fake shares

Nalini D'Souza

MUMBAI, July 31: The Bombay Stock Exchange has received clearance from the Securities and Exchange Board of India (SEBI) for a compulsory auction of bad deliveries arising on account of fake and forged shares in the `sunshine segment' of the exchange.

The exchange has decided to go in a for a compulsory auction of shares once identified as bad delivery by the clearing house.

The exchange's move to introduce the sunshine segment was aimed at wooing institutional investors and reducing the menace of bad deliveries (including forged and fake shares).

As defined by the exchange, sunshine trades include trades in all stocks registered in the name of financial institutions, mutual funds, foreign institutional investors and banks.

``Fake and forged shares is one of the important criteria for deciding whether the paper is good or bad,'' explained a BSE member.

``The entire procedure of first identifying and later replacing the lot takes about 21 days. This delay causes a lot of inconvenience to the buyer,'' he added.

As per the BSE rules, once the shares are declared as bad delivery by the clearing house, the introducing broker has to replace the same with a clean lot within a specific time period of 21 days. In case the member fails to do so, the shares are auctioned and the introducing member has to pay the auction price which is reimbursed to the buyer.

The representation made by the BSE on July 28 also sorted out the issue of attestation of debenture certificates by broker-members of the exchange. According to the changes introduced in the good and bad delivery norms of the regulatory body, debenture certificates which carry the attestation copies will be considered good delivery by the exchange.

Another change introduced in SEBI's guidelines for the identification of good and bad delivery is clause 63 which specifies the need for a company seal. The certificates already transferred in the name of the holder by the company will no longer require a common seal.