Mr Chairman, Sir
Stock markets worldwide have been on a downtrend, particularly technology stocks, for the last one year. This has also affected the Indian markets.

For instance, NASDAQ, which consists mainly of "new" economy stocks, has declined by about 59 per cent from March 2000 to March 2001. The markets in Japan, Korea, Taiwan and Germany went down in the last one year by about 50 per cent, 40 per cent, 55 per cent and 71 per cent respectively. The BSE Sensex decreased by 22 per cent in the last one year or so. In line with international technology stock indices the Indian technology stocks have declined by about 63 per cent.

While the downward movement of the Indian stock market and its volatility have not been unusual compared to international markets, around the beginning of March 2001, SEBI received information that stock prices were being manipulated. As such, investigations were initiated by SEBI in coordination with NSE, BSE and CSE on March 2, 2001 against 20 brokerage entities.

Subsequently, SEBI called a meeting of stock exchanges in Mumbai on March 5, 2001 to review the current market situation. Thereafter, the following measures were taken by SEBI:

1 SEBI has imposed a 10 per cent margin on all sales for non-institutional players effective from March 5, 2001.

2 The threshold limit for applicability of the volatility margin to be reduced from the present 80 per cent to 60 per cent.

3 No exemptions to be allowed in the applicability of volatility margin to any class of investors.

4 All sales transactions effective from March 8, 2001 shall be backed by delivery unless a sale transaction is preceded by a purchase position of at least an equivalent amount in the name of the same client in the same or any other exchange. This will also apply to proprietary trading by members. This decision will be reviewed after two settlements.

5 The current margining system will be moved to the Value-at-Risk (VAR) scrip-wise model from July 1, 2001. On March 11, 2001, SEBI announced the following additional measures to enhance market safety:

(i) As a temporary measure, banks will be allowed to provide collateralised funding in Automated Lending and Borrowing Mechanism (ALBM) and Borrowing and Lending Securities Scheme (BLESS) facilities of the stock exchanges:

(ii) The existing trade guarantee funds set up by stock exchanges would henceforth provide counterparty guarantee for all the transactions which take place on stock exchanges and meet the payment obligations of brokers immediately without waiting to declare them as defaulters;

(iii) Henceforth, the securities lending scheme would be applicable only to the transactions under the ALBM/BLESS facilities;

(iv) The additional margin of 10 per cent on the "end of the day" net outstanding sale position of all scrips in Modified Carry Forward Scheme (MCFS)/ALBM and BLESS introduced temporarily by the SEBI on March 5, 2001 is being increased to 25 per cent with effect from March 12, 2001;

(v) The broker-wise end of the day outstanding position (aggregate of all securities) of a member on any stock exchange other than the BSE/NSE shall not exceed Rs 50 crore;

(vi) The gross exposure limit for members of the stock exchanges is being reduced to 10 times of the base capital and the additional base capital in the case of NSE and to 15 times for the other stock exchanges.

On March 12, 2001, SEBI announced further measures as below:-(a) Mr Anand Rathi, former president, BSE, and his broking concerns have been prohibited from undertaking any fresh broking business till further orders are passed by SEBI in this regard. Mr Anand Rathi has also been restrained from acting as a director member of the governing board to BSE till further orders.

(b) In the interest of investors, orderly development of the securities market and proper management of BSE, 6 members of the governing board on BSE have been restrained from acting as directors or office bearers of BSE till further orders.

As far as bank advances against shares and guarantees to stock brokers by the banking system is concerned, RBI has intimated that it is less than 2 per cent of the total advances as of December 31, 2000. In this regard, according to information available with RBI, there has been no violation of its prudential norms. While fluctuations are normal in stock markets and should not be a matter of undue concern, we should be vigilant with regard to any systemic risk or movements driven by any form of manipulation. I have been assured by SEBI that there is no systemic risk to the market and there is no danger of a payment crisis. SEBI has already started its investigations as far as price manipulation is concerned and will take necessary follow-up action. In addition, I propose to take the following measures to improve institutional mechanisms and trading practices in our stock markets:

(a) Corporatisation of stock exchanges by which ownership, management, and trading membership would be segregated from each other. Administrative steps will be taken and legislative changes, if required, will be proposed accordingly.

(b) Extension of rolling settlement to 200 category "A" stocks in Modified Carry Forward Scheme, Automated Lending and Borrowing Mechanism and Borrowing and Lending Securities Scheme by July 2001;

(c) Government intends to propose legislative changes to further strengthen the provisions in the SEBI Act, 1992 to ensure investor protection.

To conclude, I would like to reiterate that the government and SEBI will continue to make every effort to ensure that capital markets operate in an orderly, transparent, safe and fair manner for all investors.

I would like to assure the House that the guilty shall be brought to book without fear or favour and no one shall be spared.