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CSFB executed Rs 18.14 billion trades for Ketan Parekh

Rakesh P Sharma and Janki Krishnan

Foreign institutional brokerage Credit Suisse First Boston executed trades worth Rs 18.13 billion for Ketan Parekh group between January and March 2001.

All these were in the nature of funding transactions by CSFB to Parekh, according to the interim investigation report by Securities and Exchange Board of India.

The transactions by CSFB for Parekh were for the purpose of providing them with short-term working capital, the repayment of which was secured by the settlement guarantee of the exchange.

The institutional brokerage released payments out of its own funds against delivery of shares, and repayment was ensured through the settlement mechanism of the stock exchange.

"For this purpose the member acted in collusion with the Ketan Parekh group brokers for synchronising the buy and sell orders to result in structured transactions on both, the Bombay Stock Exchange and the National Stock Exchange," the report pointed out.

"These are not genuine transactions conducted in the ordinary course of business, but are highly irregular in nature and violative of rules and regulations governing fair and transparent dealing in securities," it said.

The Sebi report said that when CSFB was confronted with the transaction details, it clarified that the trades had taken place in the ordinary course of business and that they had insured management risk by insisting on delivery of stock before release of payments.

However, "no satisfactory explanation was adduced for charging differential rates of brokerage and synchronisation of orders with brokers simultaneously buying on behalf of Ketan Parekh group," it pointed out.

CSFB started dealing for Parekh from 1998-end and records show that his group conducted only sale transactions through the brokerage. The accounts reveal that CSFB was making payments to them on the date of transactions itself, without waiting for pay-out of funds from the exchange in lieu of securities.

For instance, in the case of sale of three lakh shares of Adani Exports on February 27, on behalf of Luminant Investments (a client of CSFB) the entire payment of Rs 251 million was made on the same date but 178,000 shares were credited to the pool account of the member on the following day.

In fact, sale transactions on behalf of the Parekh group by CSFB was matched by corresponding buy trades placed by Triumph International and other broking concerns of Parekh.

According to CSFB since Parekh's group dealt only in large trades, it had requested them to find a buyer also. The buying broker would approach their dealer and ask them to put on the trade in the market or the client would co-ordinate execution of the trades.

"The explanation of the member is unconvincing, defies logic and albeit substantiates the contention that these trades were collusive in nature," the report said.

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