CALCUTTA, Nov 2: The Securities and Exchange Board of India (Sebi) has observed that investors' confidence in Calcutta Stock Exchange (CSE) has waned considerably and they are running away from the bourse to other exchanges.

A confidential report, prepared by the capital market watchdog and circulated among the public nominees on Calcutta Stock Exchange board, said the exchange earlier used to be a leader in price discovery for certain scrips, but of late the exchange has become a follower, and to some extent, a centre for arbitrage.

Commenting on the turnover in group `B' scrips of the exchange, Securities and Exchange Board of India noted that it had drastically fallen from Rs 10,906 crore in 1995-96 to Rs 829.51 crore in 1996-97. According to one of the nominees, efficiency in the operations of the exchange had taken a plunge in the last two years.

Further, the delivery-based business had reduced sharply and deliverable trades were only to the extent of one to two per cent of the total volume. According to the stock market regulator, this only showed that most of the volumes traded on the CSE was in the nature of speculation, arbitrage, and squaring off for short-term gains.

As regards awarding penalties to errant members, Securities and Exchange Board of India said the exchange should not use discretion while imposing fines. The penalties imposed should act as a deterrent to future defaults.The market watchdog has also pulled up Calcutta Stock Exchange for failing to provide supporting documents for its decision to impose ad-hoc margin from the members. It noted that cse had imposed insignificant penalties for non-payment of mark-to-market (MTM) margin and for not maintaining adequate base capital.

Sebi pointed out that risk containment measures like capital adequacy, margins, and intra-day trading limits implemented by the exchange were grossly inadequate and not in conformity with the policy directives issued by it.

As regards MTM margin, Sebi noted that it was only underestimated, but also not collected in full and in time. There were also instances of frequent failures in payment of MTM liability, and punitive actions which were taken by the exchange, were grossly inadequate.

Securities and Exchange Board of India said base minimum capital deposited by members was not in form prescribed by it, and it was fully adjusted against the daily margin liability of members.

In the event of a default, Calcutta Stock Exchange has either the base minimum capital or the daily margin, and not both, which was improper, according to Securities and Exchange Board of India .

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.