The sensex has breached the 10,000 mark, and it has continued to sustain at that level; it appears that stock prices know no other way but to move northwards. s are busy recommending their clients to stay invested; retail investor participation in the markets has increased manifold and FII inflows have been increasing steadily. The IPO market has been highly active and the returns on some of these issues have been nothing short of spectacular.
The exceptional returns of the IPOs have propelled record subscription levels, reducing the probability of small investors getting a share of the allotment. This situation often makes the stock market vulnerable to malpractices and price manipulations. There have been two such instances where the small investors were duped. The first one was the Yes Bank IPO scam. It was an act of undermining moral integrity and process by an individual. Roopalben Nareshbhai Panchal submitted a bid for 1,050 shares of Yes Bank but received none. Astonishingly, however, 9.5 lakh shares of Yes Bank were credited to her account from 6315 demat accounts through off market transactions before listing. Further, a day before listing, 9.3 lakh shares from her account were transferred to six different entities through off-market transactions. The issue price was Rs. 45 per share and the above entities had sold these shares on listing at Rs. 61 per share, making a clean profit of Rs. 1.35 cr. The most interesting aspect of this scam was that 6221 demat accounts of the above 6315 had the same address. Sugandh Estates, another such entity received 1.98 lakh shares before listing from 1315 bogus demat accounts. 1.96 lakh of those shares were then transferred to three different entities which sold them on listing for a profit of Rs. 32 lakhs. The second instance was the IDFC scam, where 45,000 fictitious demat accounts were spotted and four investors opened 14,807 demat accounts to corner a large chunk of the shares of the company, the number of shares transferred in such a manner is yet to be ascertained.
And there are always problems caused by the discretionary allotment policies that exist. The absence of a margin for institutional investors has always caused fake over subscription of the Qualified Institutional Buyers (QIB) quota. The deliberate jacking up of subscription numbers on the heels of an issue opening misleads retail investors and sends wrong signals regarding the listing price. At such a juncture, usually the regulators are expected to pull out all the stops to keep track of the investors' activities and check if they are legitimate. Ironically, in a shocking move, the Securities and Exchange Board of India (Sebi) recently announced its decision to scrap the usage of biometrics in investor identification.
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