BSE faces Sebi flak over NMDC share sale

MUMBAI: Capital market regulator Sebi has pulled up BSE for flouting norms during the offer for sale ( OFS) of shares of state-owned miner NMDC in 2012. It has questioned the stock exchange’s decision to accept bids for 4.55 crore shares after the deadline.

The regulator has also directed BSE to engage one or more independent consultants to review the entire sequence of events, the process followed, checks in place, systems employed while accepting the OFS bids by it. "The consultant should bring out the shortcomings, if any, and suggest remedial measures within three months. BSE shall then fix the responsibility internally, both in terms of processes and personnel, and take appropriate action," Sebi’s whole-time member Prashant Saran said in his order.

The regulator said it would also conduct a detailed probe into the confirmation of bids by Citibank NA. On December 12, 2012, the promoters of NMDC sold 39.64 crore shares through the OFS route. But the share sales came under the regulatory scanner after Sebi sought bid data from the stock exchange which revealed that the exchange had accepted bids from investors for 4.5 crore shares after 3.30 pm --the cut-off time.

The regulator alleged that even though bids were placed by the custodian Citibank NA within the cutoff time, the transfer of funds to the clearing corporation had taken place only at 5.09 pm on December 12, 2012, and the bids were confirmed much later between 6.22 pm and 6.31 pm.

Sebi rules mandate that the placing of orders and funds on the exchange system in an OFS should take place during the trading hours only. In the case of institutional trades, the custodians are given additional half an hour time post the close of trading session for confirmation of the bids with the available funds.
During NMDC’s OFS, several bids were placed with BSE by Citigroup Global Markets India, DSP Merrill Lynch, Axis Capital and Antique Stock Broking aggregating 4.55 crore shares of NMDC for confirmation by the custodian, Citibank NA.

All the bids had been placed before 3.30 pm on the OFS platform of BSE. At around 3.55 pm, prior to the expiry of the half an hour post close session, BSE had received a fax from Citibank informing that at the request of the custodian, the collateral of approximately Rs 905 crore in respect of the 4.55 crore shares bid has been received for the credit of bank account of the Indian Clearing Corporation Limited held with it.

However, the collateral deposit request of the custodian could not be uploaded on the exchange system in time, on account of an inadvertent human error and due to large volume of bids received in the last half an hour before the close of trading. Therefore, Citibank was permitted to formally confirm the bid for 4.55 crore shares in the system between 06.22 pm to 06:30 pm.