A day after capital market regulator unearthed the multiple application scam in initial public offer, there are several questions on how effective depositories are in detecting frauds.C B Bhave, chairman and managing director, National Securities Depository Limited, the largest depository in the country talks to Business Standard.
Are you appalled by the magnitude of the multiple accounts?
Multiple application is not a new issue. In the SBI issue in 1993-94, the Income Tax department had discovered similar things. In fact, the Securities and Exchange Board of India went to proportionate allotment in IPOs only to address this issue.
Later, this was revised and reservation came back. We need to look at why multiple applications happen in the first place. It is because the system provides incentives for small applications.
We need to examine if we really need this. We need to see if some system-level changes have to be brought about to eliminate the incentives that exist for multiple applications.
As long as we make exceptions for a certain class, people will keep on going there because nobody wants to follow the general rule; they want to be the exception.
Aren't your systems capable of detecting multiple accounts?
They are. But legally, there is no bar on having multiple demat accounts. How one uses those accounts is what needs to be examined - whether it is illegal. We don't want to get into the issue of how many accounts one person can have etc. That is a policy matter.
But we do need to have a system which is credible, reliable and easy to execute. The best way to curb abuse of multiple accounts is to have unique identification numbers for all market participants.
So even if you have multiple accounts, you know that they all belong to one person and monitoring is easy. Unless accounts are linked to a unique identification number, there is no way of restricting abuse of the system be it tax evasion or allotment in primary issues.
So who is supposed to monitor that multiple applications are not honoured?
According to Sebi guidelines, multiple applications are not eligible for allotment. We share all the information related to the applicants with the registrar. Ultimately, the registrar to the issue and the lead managers are to ensure that multiple applicants do not get allotment. That is what the Sebi order also brings out.
Sebi has asked you to step up surveillance...
The suggestion is most welcome. Because this is one area where one can claim they have arrived. It is only aberrations which teach you what else you need to do. The thieves will be ahead of the policeman most of the time.
This is an ongoing process. We will start the inspection the records of Karvy from Monday and present a comprehensive report to Sebi along with our suggestions on remedial measures.
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