System Defects that led to Ketan Parekh Scam
First: Indian Banking Systems
Ketan parekh was a very good broker but he did not had enough money to make it big by investing into larger stakes. For this he borrowed from various banks public and private both and also from companies. According to reports, the 12 lakh shares he owned of Global would have cost him Rs 200 million and stocks of aftek Infosys would have cost him Rs. 50 million, Zee and HCFL around Rs. 250 million each. His methods were very simple. Ketan Parekh used to buy shares of high growth companies when they were trading at low prices and then waited for the prices to go up, once the prices were high enough he used to pledge the shares with the banks as collateral for the funds.
…show more content…
A big hand amongst them was of Madhavapura Mercantile Co-operative Bank(MMCB). Madhavpura Mercantile Co-operative Bank (MMCB) issued him credit regularly against his overpriced ICE (Information, Communication and Entertainment) stocks. MMCB violated Reserve Bank of India (RBI) regulations by providing Ketan Parekh's companies about Rs.840 crores. Banks such as Global Trust Bank(GTB) and Standard Chartered had also given Ketan Parekh an over-draft facility which he used to recycle funds into the market. SEBI's investigations reveal that, Ketan Parekh had access to near about Rs.2,000 crores of funds, primarily from banks by the end of march 2001. "Ketan Parekh misused the banking system to channelise banking funds into the stock market," the SEBI reports said. MMCB crossed its capital market exposure limits by issuing funds to Ketan Parekh without proper collateral security. MMCB's loans to stock markets were around Rs 10 billion out of which amount lent to Ketan Parekh and his firms were over Rs 8 …show more content…
Other mutual fund investors also followed them believing that the market activity indicated that these companies had a good future ahead.
Second: The Badla System
All this was allowed to happen because of the Badla System, this system was later corrected by the SEBI, that is after the Ketan Parekh Scam came into light.
Badla System is a trading involving buying of stocks using borrowed money with stock exchange as an intermediary at some interest rate which is determined by the demand for the stocks and the maturity date which is not greater than 70 days. In badla system of trading, broker is responsible for the maintenance of stocks.
‘Badla’ literally means ‘something in return’ and it is the charge that the investor pays for carrying his position forward. It is a hedge tool and lets the investor to take position in the scrip without even taking an actual delivery of the stocks. Badla transaction system was in practice for several decades in the stock exchange of
What are the major reasons investors purchase mutual funds as reported to the Lawrences by the Financial Advisor?
...ws the business to lease equipment used for farming and production. This use of financing allows Tassal to avoid a large loss of capital when purchasing equipment. Instead they are able to make periodic payments, which offer a distribution of funds rather than an initial large expenditure. Therefore Tassal is able to focus on its key activity of ensuring growth and a continued long term return for investors. By avoiding large expenditure of capital these funds can be kept, allowing for increased profits which directly affect the shareholders in the company.
Using money for payment or exchange is called a monetary system. "Under a monetary system money is exchanged for goods or services; goods and services are exchanged for money when people sell things"(Case, Fair, Oster, 2012). Mone...
On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts' write-ups of Nike, Inc., the athletic-shoe manufacturer. Nike's share price had declined significantly from the beginning of the year. Ford was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies, with an emphasis on value investing. Its top holdings included ExxonMobil, General Motors, McDonald's, 3M, and other large-cap, generally old-economy stocks. While the stock market had declined over the last 18 months, the NorthPoint Large-Cap Fund had performed extremely well. In 2000, the fund earned a return of
Perhaps the biggest failure in the reservation system affecting current times is in the status of laws and jurisdiction. Communal land ownership and federal trust restrictions on land ownership and use inhibit economic development and many land allotments are owned collectively by groups of individuals. Multiple ownership makes it difficult to manage the lands and it reduces benefits to individuals. It is also nearly impossible to use the land as collateral for obtaining loans because of federal protection from encumbrances on trust
they also chose to access the markets in 2000 in order to ensure access to funds at attractive pricing despite
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
In 1986 convince a businessman named Douglas Maxwell to join him in etablishing the Frankel Fund. The Frankel Fund was an investment partnership in which the limited partners had to invest at least $50,000 each. In 1991 the Frankel Fund failed and the Securities and Exchange Commission banned him from dealing with securities business for life. After that he using false names he set up the Creative Partners Fund LP. This fund was another scam like the Frankel Fund but the minimum investment was only $10,000 and it spread through a much broader base of investors. He and his partner Sonia Schulte formed a thunor trust to purchase insurance companies that where in financial trouble.
In 2003, Capital Market Authority (CMA) was established under the Capital Market Law (CML) to act as regulatory supervisor for the capital market. Capital Market Authority regulate and supervise different critical issues such as market conduct, merger and acquisitions, corporate governance, and issuance of financial tools such as mutual funds, IPOs and Sukuks “Islamic bonds”. Thus, the establishment of CMA defined a new stage of financial liberalization in the country. CMA established the legal and regulatory platform to open up the Saudi capital market, support the privatization effort and increase public participation in the market while promoting efficiency and transparency. Furthermore, in March 2007, Tadawul exchange was re-incorporated as joint stock Company with a capital of USD 320 million to increase autonomy for the exchange. After the formation of CMA, the Saudi capital market continuously evolving in term of breadth, depth and complexity. In March 2010, the number of listed companies increased to 139 from 76 back in 2001 as local companies started to look at capital markets to fund their future financing needs. Due to the increasing in investors participation, Tadawul’s total market capitalization at a compound annual growth rate “CAGR” of 34.8% to SAR 1.9 trillion which about USD 507 billion between 2003-2007. Due to the financial crisis in 2008-2009 the market capitalization for Tadawul declined to SAR 1.2 trillion, which about USD 320 billion. Between the years of 2003-2007, the stock market activity grew in a fast pace without interruption in term of value, volume, and market cap along with rising in the number of transactions. The total trading volume of shares on Tadawul Stock Exchange increased at a CAGR of 11.4% between 2003-2009. The
Through the IPO, Narayan Hrudayalaya offered 245 lakh shares for sale by promoters and other shareholders to public. Among the promoters group, Dr. Devi Prasad Shetty and Shakuntala Shetty offered 20.40 lakhs shares each. The biggest block of 122.6 lakh shares was offered by JP Morgan, after which its holding will reduce to 4.67% from
mezzanine financing that it received from rich financial planners in a result of which it
Ambani took a different route to cut his capital costs. He seeded the equity cult, and converted his huge debts at high premiums into equity. His effective cost of capital thus came to match the cost of comparative projects abroad. And thanks to his equity raising abilities, his projects always were set up at the lowest cost.
Float is the difference between a company’s recorded amount of available cash and the amount that has been credited to the company by the bank that results from time delays in certain processes within the banking system, such as mailing and clearing checks. Companies “play the float” in order to decrease collection times or extend disbursement dates, allowing them to have more cash on hand to use for interest building securities. Electronic Funds Transfer is a system that allows funds to be transmitted and credited electronically without the presence of a paper check. Electronic Funds Transfer increases the efficiency of the banking system and decreases collection float time. International cash management is a technique that allows a company to deposit money in countries with high interest returns. International cash management provides opportunities for a company to invest in high return loans that maximize profitability. Marketable securities is a technique that turns non-generating cash into interest generating revenue through treasury bills, treasury notes, CD’s, commercial paper, Eurodollar deposits, and savings accounts.
In the wake of guaranteeing specialized attainability and money related reasonability, the advance is endorsed by the bank. The credit is dispensed in stages viz., development of sheds/other common structures, buy of hardware and apparatus, repeating cost on buy of chicks, nourishes, solutions, and so on. The end utilization of the credit is checked and steady catch up/observing is finished by the
In case of illiquid Local markets clients can benefit by Easy access of acquiring financing by entering into highly li...