Ketan parekh scam

Presented by:Vasu ruthvick

Preetish DhulshettiSomnath benarjee

INTERNATIONAL SCHOOL OF BUSINESS & MEDIA

BANGALORE

Pied Pieper of Dalal Street

Ketan Parekh is a former stock broker from Mumbai, India Popularly known as ‘Bombay Bull’.

KP arrested on 30 march 2001 for the security market scam known as Ketan Parekh scam.

He was convicted in 2008, for involvement in the Indian stock market manipulation scam in late 1999-2001.

Currently he has been debarred from trading in the Indian stock exchanges till 2017

He was trainee of Harshad Mehta. Ketan Parekh can be best described as

the Pied Piper of Dalal Street. Parekh came from a family of brokers

which helped him to create a trading ring of his own.

How it happened?Formed a network of

brokers

Identified and targeted 10 stocks.

Zee telefilms went up from Rs. 127 to Rs. 2330, Himachal Futuristic – Rs. 194 to 2553.

Funding MechanismSimple borrowing mechanism

Badla System

Badla System Indigenous carry-forward system invented on

the Bombay Stock Exchange Badla trading involved buying stocks with

borrowed money. The stock exchange acts as an intermediary. Interest rate determined by the demand for

the underlying stock Maturity not greater than 70 days

How it happened? When stock prices were high, they were

pledged with banks as collateral.

No problems as long as prices were rising.

How was it detectedStock market crash of 2000

KP started borrowing heavilyAttempted to rig the price upwards and later

sell.But failed to do so.

IT department found discrepancies in sources of funds of KP

Routine market surveillance of 5 stocks

FACTORS THAT HELPED KETAN PAREKHThough KP was a successful broker, he did not have money to buy large

stakes as he held the stakes of more than Rs 750 million in July 1999, according to a report.

Analyst claimed that he had borrowed from various companies and banks for this purpose.

His financing method was fairly simple.

He bought shares when they were trading at low price and saw the prices go up in the bull market while continuously trading.

When the prices was high enough, he pledged the shares with banks as collateral for funds, and also borrowed from the companies like HFCL.

CONT……. It could not have been possible without the involvement of banks.

A small Ahmadabad-based bank, Madhavapura Mercantile Cooperative Bank (MMCB) was KP’s main ally in the scam. KP and his associate started tapping the MMCB for funds in early 2000.

ImplicationsKetan Parekh was arrested by CBI on 30th March

2001. He was charged defrauding Bank of India by almost $20 Million

Global Trust Bank and Bank of India 's merger failure

RBI ordered some banks to furnish data of Capital market exposure

SEBI inspected the books of several brokers suspected of triggering the crash

Implications One of the biggest Fall in BSE -700 points KP and other traders were banned from

trading for 17 years Short selling was banned for 6 months. Badla system was banned All shares that were put as collaterals should

be done so through NSE and BSE. 10% additional deposit Margins.

IMPACT OF THE SCAM ON FINANCIAL INSTITUTIONSKetan Parekh was threatening to sue the Bank of India for defamation

because it complained of bouncing of 1.3 billion pay orders issued to the broker by Madhavpura Mercantile Cooperative Bank

Investigations by SEBI and CBI reveal that sheer magnitude of money moved by Parekh was a staggering 64 billion

Steps taken by SEBI after scamSEBI launched immediate investigation on the

scam.• It suspended all the broker member directors of BSE’S

governing boardSEBI also banned trading by all stock exchange presidents,

vice presidents and treasurersSEBI banned naked short sales. RBI started inspecting accounts and sub-accounts

twice a year in spite of once in two year. SEBI allowed banks for collateralised lending only through

BSE and NSE

Thank you