Sebi censures BSE for lapses in NMDC stock sale; orders probe

Capital market regulator Securities and Exchange Board of India (Sebi) has pulled by the Bombay Stock Exchange (BSE) for lapses while conducting the Rs6,000 crore share sale of PSU major NMDC.

The promoters of NMDC (government) had offered to sell 39,64,71,600 equity shares of the company through the offer for sale (OFS) mechanism of the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE) on 12 December 2012.

After the closure of the issue, Sebi, in order to ascertain the final cumulative bids, sought the bid data from BSE and NSE. A BSE e-mail at 5:57 pm on 12 December stated that the final cumulative bids received at BSE were 29,91,10,449 shares. BSE in another e-mail at 7:04 pm revised the figures and informed Sebi that the final cumulative bids received by BSE were 34,46,72,625 shares, ie, an increase of about 45.5 million shares.

In the meantime, BSE sought inspection of documents/information relied upon by Sebi for the purposes of the SCN. The inspection was undertaken by the representatives of BSE on 5 June 2013.

Thereafter, BSE replied to the SCN in a letter dated 2 July 2013 and requested for an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the BSE on 6 September 2013. However, BSE on 21 August wrote to Sebi seeking an adjournment, which was considered and the hearing was rescheduled to 23 September 2013.

During the OFS process of NMDC, several bids were placed with BSE, inter alia, by Citigroup Global Markets India Pvt Limited, DSP Merrill Lynch Limited, Axis Capital Limited and Antique Stock Broking Limited aggregating to 45.5 million shares of NMDC for confirmation by the custodian, Citibank NA.

All the bids in respect of which data was furnished to Sebi as on 12 December 2012, 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 facsimile from one of its authorised clearing bank, viz, Citibank on behalf of the custodian, Citibank NA informing that at the request of the custodian, the collateral of approximately Rs905 crore in respect of the 45.5 million shares bid has been received for the credit of bank account of the Indian Clearing Corporation Limited (ICCL) held with Citibank.

The collateral deposit request of the custodian, Citibank NA, 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, ie, prior to
3.30 pm. Therefore, Citibank was permitted to formally confirm the bid for 45.5 million shares in the system between 6.22 pm and 6:30 pm.

The bid of custodian, Citibank NA, was received before the cut-off time of 3.30 pm and the request for updating the collateral submitted before 4.00 pm shows that it had the legitimate expectation to participate in the OFS.

While responding to the email received from Sebi at 5.57 pm, BSE had submitted that it had received the final cumulative bids for 29,91,10,449 shares of NMDC. This did not tally with the actual figures.

Sebi today censured the bourse for its conduct and asked it to take necessary actions after an independent review.

Besides, the capital markets regulator would conduct a "detailed probe" into confirmation of bids, worth about Rs682 crore, by Citibank placed for the offer for sale (OFS) that took place nearly two years ago.

In its order, Sebi asked BSE to engage "one or more independent consultants to review the entire sequence of events in the matter, the process followed, checks in place, systems employed while accepting the OFS bids by BSE."

The consultant would need to "bring out the shortcomings, if any, and suggest remedial measures within a period of three months. BSE shall then fix the responsibility internally, both in terms of processes and personnel, and take appropriate action," Sebi said.

The exchange would need to inform Sebi within further three months as to how the recommendations of the consultant, along with the regulator's directions, have been implemented.