In less than three years the stock markets are witnessing a second crisis. Brokers have failed to meet their payment obligations, stock exchange authorities have been found to be misusing privileged information, banks have been doling out their depositors’ money to brokers for speculation on the stock markets, people with inside information have been freely making use of that information to profiteer on the bourses and the regulators who should have acted to prevent all this from happening – the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) – have failed in that task. SEBI must have been aware of the crisis building up for many months. It still did not initiate any pre-emptive investigation. Unofficial badla was flourishing on the floor of the Calcutta Stock Exchange with several prominent brokers from Mumbai involved in a big way. SEBI’s pleas of lack of powers are hardly convincing. It has all the power needed to investigate brokers and ask for the sources of funds. What is required is a genuine desire to act against market manipulation and doubts on this score are not easily allayed when one considers, for instance, the pace at which SEBI’s investigations against the promoters of three companies who are alleged to have led the price rigging in the 1998 crisis have been proceeding.

SEBI has since suspended all the broker members on the board of the Bombay Stock Exchange, hours after the president of the stock exchange had been replaced by another broker member. Other measures such as banning short sales and imposing higher margins on transactions have been taken. The government too has been forced to intervene in the situation and has announced a number of steps: corporatisation of stock exchanges, extension of rolling settlement to 200 scrips and further empowerment of SEBI to take disciplinary action. As noted above, however, SEBI already has the necessary powers to punish erring brokers, always the kingpins in crises of this type brought on by market manipulation and price rigging. SEBI can also, if it wants to, punish the concerned promoters of companies who are hand-in-glove with the brokers. Similarly, as is argued in an article in this issue (p 993), corporatising or demutualising the stock markets will not necessarily address the basic issue which is to put an end to brokers’ control of the management of stock exchanges. Such control could conceivably continue after corporatisation, indeed it could even be rendered more complete. On the other hand, SEBI and the government already have powers to take critical action in terms of increasing the number of non-brokers on the boards of the stock exchanges and ensuring that brokers do not become office-bearers of the exchanges.