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MPs seek review of JPC's draft report on ALBM

Four MPs including Samajwadi Party leader Amar Singh have asked the Joint Parliamentary Committee on stock market crash to reconsider some of its observations in the draft report regarding the role of major market participants like Reliance in ALBM saying they were based on "incomplete representation of facts".

In a four-page letter to JPC chairman Prakash Mani Tripathi, they said the committee's observation relating to withdrawal of Rs 19 billion deployed in short-term lending by corporate entitites to brokers under automated lending and borrowing mechanism were not the reasons for increase or decline in market prices.

The report said that Rs 19 billion was withdrawn from the ALBM (automatic lending and borrowing mechanism), Bless (Borrowing and Lending of Securities System) and Vyaj Badla system, where Reliance Shares and Stock Brokers Ltd was the topmost player, in ten days ending March 2001, and Sebi did not realise the role played by ALBM in the market crash of 2001.

Apart from Singh the three other MPs -- Praful Patel (Nationalist Congress Party), Prem Gupta (Rashtriya Janata Dal) and Kunwar Akhilesh Singh (SP) -- cited Sensex movement during April-October 2000 to emphasise that Sensex dropped 1200 points even though major market participants deployed Rs 8 billion in ALBM.

"If the linkage between market participant's ALBM financing and stock prices was real then stock prices should have gone up when the major market participant deployed funds, but in reality the reverse happened and prices declined substantially," they said.

Subsequently too, the MPs said the major market participant increased its ALBM financing by about Rs 2 billion on November 22 but the Sensex again declined by about 84 points.

The major market participant's maximum investment was about Rs 16 billion on December 20, 2000, which was higher by Rs 700 million compared to the previous week, but still, the Sensex collapsed by about 200 points, they said.

"We believe that the above examples conclusively establish that changes in stock prices had no co-relation with deployment of ALBM financing by the major market participant. Accordingly, there would be no basis for directly or indirectly raising any doubts in this regard in our report," they said.

The MPs said: "We also agree with the contention that the market capitalisation of all companies listed on the BSE was between Rs 7,000 to Rs 9,000 billion and the small amount of Rs 15 to Rs 20 billion deployed by the major market participant was too small to have had any impact on this large market capitalisation."

Also, the major participant was willing to deploy an additional Rs 10 billion on February 28, 2001 but was unable to do so because there were no borrowers for those funds, the MPs said adding "this establishes that it was the borrowers who determined the quantum of funds that could be deployed and not the lenders, however, large the latter might be."

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