1.

Study the developments that led to the Ketan Parekh scam and comment on SEBIs actions and role before and after the scam were unearthed. The Ketan Parekh scam was an e ample of the inherently weak financial! re"ulatory and le"al set up in India. #iscuss the above statement! "ivin" reasons to $ustify your stand%

Ketan Parekh is a Mumbai based share and stock broker. He is from a well to do sharebrokerage based family. He was involved in the shares scam of the year 2000/0 . !he study by "#$% found that the flow of funds originating from Ketan& when 'aired with securities market transactions of connected clients leads to the 'ossibility that these trades were e(ecuted to confuse the funds trail and to integrate the money originating from the banned stock broker into the system of banking. Ketan)s 'ossible involvement was found by "#$% during its investigation into 'rofessed mani'ulative trading in the scri'ts of *als +efineries ,imited& *onfidence Petroleum %ndia ,imited& $ang -verseas ,imited& "hree Precoated "teels ,imited and !em'tation .oods ,imited. #arlier& "#$% had Ketan and / other entities from 'artici'ating in the market following a study into 'urchase sale and dealing in the shares of com'anies like H.*,& 0ee !elefilms& 1dani #('orts& +anba(y and 1ftek %nfosys between -ctober 222 and March 200 . %n its time order& "#$% banned 23 entities and 'ersons& including Maruti "ecurities ,imited and asked them to re'ly in 4 day)s time. !he government had set u' the 5oint Parliamentary *ommittee 65P*7 to study the securities scam that hit the stock market during the year 222-200 . 1ccording to "#$%& the starting 'oint was 8routine market surveillance9 that revealed set trades in five scri'ts. %t also had information from the %! de'artment on Ketan Parekh9s source of funds which trailed back to certain entities. "#$%9s investigation showed that these entities built u' large volumes in the five scri'ts chosen for investigation: strangely enough& they often made losses on their transactions& but continued to trade. "#$% has o'inion that these inde'endently incurred losses have a secondary motive that needs to be se'arately investigated by the a''ro'riate agency. %t seems to have s'ecific concerns relating to money laundering to the enforcement and %! investigators. "#$% also found that the 8connected entities9 or fronts used by Ketan for his transactions often sold shares without having them in their 'ossession. !hey subse;uently obtained the shares in time for delivery through off-market transactions through other 8connected entities9 within the circle of o'erators. #vidence of Ketan Parekh9s massive market activities was his ability to 'ay back well over +s<24 crore to the =u>arat-based Madhav'ura Mercantile *oo'erative $ank 6M**$7 which had colla'sed and caused thousands of de'ositors to lose money when he 'um' off +s??0 crore to fund his market misbehavior in the year 222-2000.

"#$%9s team led by Mr. ".+aman 6chief general manager7 must be congratulated for breaking this seemingly im'enetrable system: but let us recognise that this is only the ti' of the market mani'ulation. Ketan Parekh is not the only mani'ulator to use this system: there are 'lenty of others doing it too. 1lso& the number of scri's in which Ketan has traded is substantially higher than the five that were investigated by "#$%. -ne of the best ke't secrets is the action taken against those involved in the scam of 2000& which led to large-scale losses& the dro' of two banks& Madhav'ura Merc-antile *oo'erative $ank 6MM*$7 and =lobal !rust $ank 6=!$7 and s'lit the giant @nit !rust of %ndia 6@!%7 into two& after 'ushing it to the brink of a colla'se. Ahether the $"# directors had used their recourse to 'rice sensitive information or not for transactions in the market& having had direct access to the data was in direct violation of "#$% rules& observes -ommen 1. Binan. AH#B !H# "ense( crossed the diCCy 4000 mark in -ctober 222& $ombay "tock #(change 6$"#7 brokers literally took to the terrace of 5ee>ebhoy !owers and released balloons. !he celebration also marked their DDbullish sentimentalism)) and showed lack of market 'rudence - that what goes u' has to come down: that the market is driven by its own dynamics. !he built u' 'osition of Mr. Parekh in certain e;uities known as DK 0)& in the normal circumstances& would not have had any ma>or im'act on the market. Aith the elected directors& including the $"# 'resident& having had recourse to the 'rice sensitive information relating to outstanding 'ositions& 'urchases and sales by leading o'erators it is to be seen whether they have used this advantage to de'ress the 'rices. !he "ecurities and #(change $oard of %ndia 6"#$%7 investigation will reveal it in the ne(t few days. !he e(citement indicated on $udget day by a shar' rise in the "ense( was rather on the high side. !here is actually nothing much in the $udget to 'romote savings. -n the contrary& savings have been discouraged by a dro' in interest rates. %t is now very doubtful whether demutualiCation or cor'oratisation of broker-driven e(changes is the answer. !he e('erience of some of the stock e(changes like the ,ondon "tock #(change& the 1ustralian "tock #(change& the Basda;& etc. is to be fully ascertained. 1ssuming that the brokers are ke't away from the management of stock e(changes& restarting their role only to their trading rights& what is the guarantee that a new management will act in an ob>ective manner. !here has been a flow of money from banks to ca'ital market in recent months. Private sector banks are 'rominent among them& including the =lobal !rust $ank 6=!$7. However& a reversal of banks) e('osure to ca'ital market recommended by the +$%"#$% committee in "e'tember last year is not a solution. Ahat is essential is that the banks should have e('ertise in >udging the risk of the business as well as the organisational ability to administer such schemes. Moreover& the 'rima facie evidence in 'rice rigging of =!$ shares raises doubts over the regulators) surveillance mechanism. !he +$% was aware of some unusual 'rice movements in =!$ share 'rices in Bovember last year itself and the "#$% took another

three months to inform the +$% that it had found evidence of 'rice rigging in =!$ share 'rices. !he true measure of regulatory com'etence is the ability of the regulators to take ;uick corrective action. .urther& the =!$)s loan to Mr. Parekh without collateral is another issue that raises ;uestions on the +$%)s role as a regulator. +egulation and su'ervision and the ;uality of on and off-site su'ervision of the +$% and the "#$% should be strengthened and they should be delinked from the .inance Ministry with more autonomy and 'owers. !he regulator should continuously monitor the investment 'attern so that any undue change in a 'articular stream& like the broker 'osition& could be identified and immediate investigation conducted. !he =overnment also should strengthen the investment institutions to facilitate long-term investments. .low of money to the ca'ital market from the lending institutions should be more trans'arent so that undue concentration of lending on 'articular scri' is avoided. !he financial crisis in 1sia in 22/ has led to a fundamental re- think about the way in which financial markets should be governed. Ahile other 1sian countries are converging towards an international set of governance best 'ractices& %ndia is still lagging behind in terms of ;uality and s'eed of im'lementation. %n a globaliCe economy& countries which fail to base the financial liberaliCation on strengthened economic 'olicies and institutional structures are bound to suffer financial crisis.

2.

&omment on mana"ement of asset and liabilities and also risk! profit plannin" for commercial banks includin" their workin"! with specific reference to the KP Scam%

Ketan Parekh was threatening to sue the $ank of %ndia for defamation& because it com'lained about the bouncing of +s .<-billion 'ay orders issued to the broker by the Madhav'ura Mercantile *oo'erative $ank. He seemed to suggest there is nothing more that the authorities would be able to 'in against him. 1t last investigations by the *entral $ureau of %nvestigation and the "ecurities and #(change $oard of %ndia reveal that the sheer magnitude of money moved around by Parekh or available to him for his market mani'ulation was a staggering +s 3E billion. 'oney abroad !he *$% called a 'ress conference to announce it had unearthed a "wiss bank account in which Parekh was listed as the beneficiary. !he $ureau claimed there was F ?0 million 6+s <.E billion7 in the account& which has since been froCen. %n the 'ast& *$% announcements were usually followed u' with a ;uick arrest& this time it has gone silent. (ew )verseas &orporate Bodies

!he "ecurities and #(change $oard of %ndia)s 'reliminary investigation in May revealed that +s 22 billion was transferred out of the country through five -verseas *or'orate $odies between March 222 to March 200 . !hese -*$s had together invested >ust +s /.// billion in the %ndian market but remitted a who''ing +s <3.// billion out of the country. !his direct flight of ca'ital occurred through #uro'ean %nvestments& .ar #ast %nvestments& Aakefield Holding& $rentfield Holdings and Kensington %nvestment. !hree of these com'anies have a 'aid u' ca'ital of >ust F 0. "#$% says the 'attern of investments and transactions through these accounts shows a clear misuse of the -*$/.oreign %nstitutional %nvestor route. !hey seem to be used as a channel to re'atriate 'rofits earned through stock 'rice mani'ulation. Many of these -*$s were sub-accounts of *redit "uisse .irst $oston whose brokerage o'erations have been sus'ended. $ut there were other .%%s too. "trangely& "#$% has not yet 'laced any restrictions on them so far. 1ll it has done is to re;uest the Mauritius -ffshore $usiness 1ctivities 1uthority to give details in res'ect of actual beneficiaries& source and utilisation of funds of -*$s and sub-accounts mentioned in its 'reliminary re'ort. %n answer to a 5oint Parliamentary *ommittee ;uery& "ebi now admits to have unearthed si( more -*$s& where there is evidence that Parekh)s com'anies may have used them for )cornering and 'arking of stocks.) Gossier "tock %nc& =reenfield %nvestments ,td& 1-M %nvestments ,td& "ym'hony Holdings ,td& 1lmel %nvestments 6Mauritius7 ,td& and Gelgrada ,td. However& since there was no other s'ecific ;uery about further re'atriation of funds& "#$% is silent about other flight of ca'ital through the -*$ window. However& it does admit there are clear inter-linkages between the -*$s and that some of them have issued 'artici'atory notes abroad to route funds to %ndia. %t also says Parekh)s entities have conducted many of their trading transactions. %n its 'reliminary investigation re'ort& "#$% unearthed a transfer of nearly +s billion to *alcutta brokers& most of whom have had their businesses sus'ended because of 'ayment defaults. %n an answer to a 5P* ;uery& "#$% now says Parekh had sent over +s 2/ billion to *alcutta brokers between 5anuary 2000 to March 200 . !his suggests that as soon as the infotech& communication and entertainment stock-led boom began to lose momentum& Parekh shrewdly began to move his s'eculative activities to the unofficial market in *alcutta in order to avoid detection. "#$% says it is investigating the source of these funds and how they were utilised. Ketan Parekh*s stock holdin" !he 'rocess of ferreting out information on his 'ortfolio is slow and tedious because "#$% has to de'end on )third 'arty sources) such as banks& de'ositories and stock e(changes and because )Ketan Parekh is not co-o'erating with the investigation.) Het& three of the com'anies identified by "#$% where he held over five 'er cent are 1ftek %nfosys& "honkh !echnologies and =lobal !rust $ank. 1ccording to "#$%& these com'anies had omitted to inform stock e(changes about his holding having crossed five 'er cent. %t is not ;uite clear if the broker continues to hold these shares and what would be the value of this holding.

%f one were to sim'ly add u' the amounts mentioned in "#$%)s various re'orts& the siCe of Parekh)s mani'ulations is far bigger than the +s 40-odd billion securities scam of 222. Het& unlike the 'revious scam& this one is absurdly sim'le and braCen in its e(ecution. "ebi says that +s 2/ billion was sent by Ketan to *alcutta brokers: +s 22 billion vanished overseas& +s <.E billion 6F ?0 million7 was in a "wiss bank account: +s / billion went to him from Himachal .uturistic: +s 4. 4 billion from the 0ee =rou' and +s 2.43 billion directly from the =lobal !rust $ank. I (E#+(,-#I B-(KJ 1fter the Ketan Parekh bubble burst in 200 & the +$% suddenly swung into action and began to go through Bedungadi9s books with a toothcomb. Pun>ab Bational $ank took over the bank that was u' for sale after +$% initiated the move to weed out the broker 'romoter +a>endra $hantia from the bank.

I ,.)B-. T/+ST B-(KJ +amesh =elli9s search for high returns took the new generation 'rivate bank to the stock market& where its involvement in the s'eculative activities associated with the Ketan Parekh scam and its high e('osure soon resulted in substantial losses. !he bank9s 'romoters attem'ted to merge the entity with the @!% $ank& and in the 'rocess the share 'rice was rigged so that the 'romoters could make a 'rofit des'ite the mess in the the bank. %t was clear that unless some drastic measures were taken& the bank was heading for closure. !his led to the e(it of +amesh =elli in 200 . #ventually& -riental $ank of *ommerce 6-$*7 took over the troubled bank.

I &)0)P B-(KSJ !he saga of failed co-o'erative banks is continuing. !he colla'se of Madhav'ura Mercantile *o-o'erative $ank after Ketan Parekh used the bank to fund his stock market rigging was the high 'oint. 1s 'er the +$% data& the accumulated losses of coo'erative banking sector has touched +s 42? crore K an alarming rise of 2E 'er cent. !he gross non-'erforming assets were +s 404< crore K enough to fund a world-class air'ort. Ahile the latest fraud may not be on the scale of the scams involving Harshad Mehta 6around +s.4&000 crores7 or Ketan Parekh 6+s.?00 crores7& what is alarming is that this time the scammers) tentacles have s'read to the Public Provident .und 6PP.7 - the re'ository of the savings of millions of ordinary %ndians. More than +s.22 crores is missing from the "eamen)s Provident .und& which has 23&400 members. Aorse still& the regulatory authorities admitted that they were aware of the mess and gave various e(cuses for not having taken timely action. ,lobal Trust Bank =lobal !rust $ank was on the verge of getting merged with @!% $ank to become one formidable entity in the %ndian banking sector& when the =reat *rash of March 200 occurred& and along with stock 'rices& the marriage too came unstuck. 6=!$ assetsJ +s /&4< .22 crore& de'ositsJ +s 3& 2?.?4 crore as on < March 2000.7

!he re'ort was believed to have noted that there was evidence that Parekh was involved in mani'ulating the stock 'rices of =!$ 'rior to the merger announcement on 20 5anuary 200 & and a swa' ratio of 2.4 shares of @!% $ank for share of =!$& two days later. State Bank of India However& this time& "$%9s losses are restricted to about +s E0 crore& lent against 'ay orders issued by 1hmedabad based *lassic *o-o'erative $ank. 1ccording to bank analysts 'olled by *a'ital Market& this is Lloose changeL for the bank of its siCe. Bank of India -f the five banks hit by 'ay order defaults& $ank of %ndia has unfortunately been the worst hit. %t cashed +s </-crore fictitious 'ay orders issued by the 1hmedabad based Madhav'ura $ank to arrested broker Ketan Parekh. !he banking sector is estimated to have taken a hit of more than +s &000 crore due to the 'ay order scam indulged in by many =u>arat co-o'erative banks. %t was $ank of %ndia9s com'laint to *entral $ureau of %nvestigation that resulted in Parekh9s arrest on <0 March 200 . Bombay Stock E chan"e !he $ombay "tock #(change witnessed one of the worst bear runs leading to a 'oint crash on 2 March 200 . //-

-n 2< May& the $"# announced the launch of trading in inde( o'tions in the first week of 5une& based on the #uro'ian style. .or this 'ur'ose& the e(change has >oined hands with the *hicago Mercantile #(change to ado't its system of calculating margin re;uirements and managing risk& known as "tandard Portfolio 1nalysis of +isk 6"P1B7.

&alcutta Stock E chan"e %n fact the //-'oint crash on 2 March 200 was triggered by the 'ayment crisis at ,yons +ange 6*"#7 and Galal "treet 6$"#7. Ahile investors were still trying to digest the shortfall of +s 00 crore for the settlement ended March on the *"#& the market was gri''ed with rumours of a fresh 'ayment crisis on *"# for the following settlement ended ? March. 1lthough the *"# authorities denied the 'ayment crisis initially& "ebi went ahead and sus'ended E0 brokers on *"#. &o0operative banks %t is now estimated that e('osure to co-o'erative banks is going to cost the banking sector above +s &000 crore.

!o stem the losses& nationaliCed banks and money market intermediaries have re'ortedly sto''ed dealing with co-o'erative banks. !he Bational "tock #(change& too& has decided not to acce't fresh bank guarantees and renewals from 4 'rivate banks as a 'recautionary measure in the wake of the 'ay order scam. +nit Trust of India 1s on 5une 2000& @!% was believed to have a total investment of +s 4&000 crore in K- 0 stocks 6 0 Bew #conomy stocks backed by arrested broker Ketan Parekh7& which today stands at less than one-fifth of its value. 1nother fallout of the crash was that @!%'romoted @!% $ank9s merger with =lobal !rust $ank was called off by the latter& stung by allegations of 'rice mani'ulation to get a better swa' ratio with @!% $ank 62.24 shares of @!% $ank for share of =!$7 .

3.

1hat effect did this scam have on the stock markets% &arry out a risk return analysis of the portfolio held by KP. 1hat would this portfolio be like in todays stock market if an individual investor had invested 233 shares in the same companies and had kept it as an investment%

!he effect of the Ketan Parekh scam on the stock marketsJ !he 'anic run on the bourses continued and the $ombay "tock #(change 6$"#7 President 1nand +athi)s 6+athi7 resignation added to the downfall. +athi had to resign. $y the end of March 200 & at least eight 'eo'le were re'orted to have committed suicide. Hundreds of investors were driven to the brink of bankru'tcy. 1 change of +e. in the 'rice of a share when one s'eaks of a share rising or falling by so many 'oints. %n stock market indices& however& a 'oint is one unit of the com'osite weighted average on market ca'italiCation of ru'ee values. 1 stock market inde( indicating weighted average of <0 scri's& also known as the $"# "ensitive %nde(. !he daily closing figure of this inde( broadly reflects the 'erformance of the ca'ital markets. %t was alleged that =lobal !rust $ank e(ceeded its *a'ital market e('osure. 1n investor who e('ects share 'rices to go u' and hence buys them. $ut during this 'eriod it was the reverse. Peo'le got 'anicked. Many took back there investments. it affected the fdi9s and the .%%9s the "ense( lost over /00 'oints and more than 400 of the <3E actively traded shares touched 42-week lows. %n the entire month of March 200 & a total wealth of nearly +s. E30000 million 6a''ro(imately @"F<2 billion7 was wi'ed out in market ca'italiCation& more than +s.E4000 million a day.

!he immediate fallout of market crash in $ombay was so wides'read that shock waves were also felt in *alcutta and other financial centers. !he 'ayment crisis broke out in the *alcutta "tock #(change 6*"#7 with nearly 00 brokers unable to meet 'ayment obligations. ,ater& all broker-directors of the *"# governing board resigned. 1lthough Ketan Parekh came to 'ublic notice only in early 222& his overarching influence on the financial markets could be gauged from the fact that his favorite stocks were known as MKP "tocksN and market 'layers had more faith in the MKP %nde(N rather than the "ense(.

=lobal& Himachal and G"O "oftware will not fit in the universe of an institutional investor& but for Parekh)s 'resence. !he country)s largest mutual fund& @!%)s @nit "cheme-3E& had Himachal .uturistic 6 .E? 'er cent of the 'ortfolio7& +anba(y 6 .<2 'er cent7& Pentafour 6 .<4 'er cent7 and

=lobal !ele-"ystems 6 .04 'er cent7 on "e'tember <0& 222

com'anies Himachal .uturistic adani 0ee !elefilms +anba(y "ilverline Pentamedi a =ra'hics "atyam *om'uter 1ftek infosys

1d> close +ecent on march 'rices 200 E4.?4 0./4 22?.4? E2<.?4 0 24.? 4.<? 4/.<4 ?23.?4 242 EE3.24 4.2E 2.3 0 4/./4

Gividend 6million7 0 ?30 22<2.E2 0 E3.?0

#('ected return -0.0//P -0.<EP <.<2P 4.EEP -0.<034P 0.? 0P

4.

KP4 venture was formed for fundin". E plain the le"al procedures and accountin" procedures in this kind of mer"ers! for floatin" a new company%

5I(-(&I-. P/)&E#+/ES Purpose of this document !o define the financial systems used by 1n -rganisation and how they relate to all areas of the organiCation 6sometimes referred to as .inancial "tanding -rders7. +elevant to managers and finance staff. 1ll suggestions for amendments to .inancial *ontroller. Minor amendments/u'dates to be agreed by Management !eam: ma>or amendments by $oard of !rustees. 2. )rderin" supplies and services 1ll staff needs to be aware that e('enditure is committed when an order is 'laced on behalf of 1B -+=1B%"1!%-B& not when the che;ue is re;uested. !herefore& it is im'ortant that all orders are 'laced 'ro'erly& and are within agreed budgets and delegated 'owers. $udget holders can 'lace orders for goods or services within their budget areas& sub>ect only to cash-flow restraints. 1ll orders of Q &000 or more must be authoriCed by the budget holder& e(ce't for s'ecific areas of e('enditure where written 'rocedures have been agreed 6e.g. book 'rinting7. @nder Q &000& the budget holder may delegate all ordering as a''ro'riate. $udget holders will discuss with the .inancial *ontroller a''ro'riate 'arameters& 'lus ma(imum allowed deviations before the budget holder or senior manager is brought in& which will be documented. 1ny lease& hire 'urchase agreement or other contract involving e('enditure will be sub>ect to the same authoriCation 'rocedure as above& with the a''ro'riate e('enditure amount being the total committed e('enditure over the 'eriod of the contract& or where the contract is o'en-ended& over the first 2 months of the contract. ,arger contracts should not be entered into without ade;uate advice from a relevant 'rofessional adviser 6e.g. accountant& solicitor& and surveyor7. -rders of Q &000 or more must be 'laced in writing. -rders under Q &000 but over Q 00 should be in writing where 'ractical. #ach Ge'artment will devise a''ro'riate

ways of kee'ing records of such orders& which will be contained in an 1''endi(. "u''liers must be re;uested to 'roduce invoices. %f 'ayment is needed on or before delivery or no credit is given& a )'ro-forma) should be 'rovided. Ahile claims for small items of e('enditure may be made via 'etty cash 6see section E7& ade;uate su''orting documentation& 'referably recei'ts must be obtained. ,arge items re;uiring cash 'ayment must be checked with .inance before the arrangement is confirmed. 6. Payment authori7ation and Purchase .ed"er 1ll invoices must be authoriCed for 'ayment by the budget holder& although the actual checking of details may be delegated. !he authoriCing de'artment is res'onsible for checking invoices for accuracy in terms of figures and conformity with the order 'laced& that the services or goods have been received& and following u' any 'roblems. .inance must be informed if there are ;ueries delaying authoriCation or if 'ayment is to be withheld for any reason. 1 Purchase ,edger is o'erated by .inance. 1ll incoming invoices are to be 'assed to .inance section as soon as they arrive. %nvoices will be recorded on to the Purchase ,edger within two days& unless there are coding 'roblems. !hey are then 'assed on to budget holders for authoriCation. -nce authoriCed as above& su''liers will be 'aid within the a''ro'riate timescale. !his is generally E days of invoice date for B%*# P#-P,#& <0 days for others& unless there are e(ce'tional cash-flow difficulties or s'ecific su''lier arrangements. !he latter must be communicated by budget holders to .inance& who will inform them of any difficulties in meeting these. +efunds of over'ayments or cancellations of bookings/orders can be fully delegated to the relevant activity manager or administrator 6note that this does not include any )com'ensation) or similar 'ayment7. 8. &he9ue writin" and si"nin" "ignatories will only be drawn from senior staff and !rustees& and any new signatory must be a''roved by the !rustees before the bank is notified. 1ll che;ues for Q 00 or over re;uire two signatories. *he;ue signatories should check that the e('enditure has been authoriCed by the a''ro'riate 'erson before signing the che;ue. "alary 'ayments re;uire the signature of the Girector& *om'any "ecretary& .inancial *ontroller or a member of the $oard of !rustees& 'lus one other. "ignatories will not sign che;ues which are 'ayable to themselves& or blank che;ues. *he;ues should be filled in com'letely 6with 'ayee& amount in words and figures& and date7 before che;ues are signed. !he only acce'table e(ce'tion is that the amount can be blank as long as the che;ue is endorsed )Bot more than Q ....). +ecei'ts for this ty'e of e('enditure must be returned immediately. !he day-to-day limit on encashment of che;ues is Q240. However& where a larger cash float is re;uired 6for a ma>or event for e(am'le7& this may be a''roved by the .inancial *ontroller with the Girector. Ahen signing che;ues to restore the im'rest balance 6see section E7& recei'ts accom'anied by an add-list must be 'resented with the che;ue re;uest.

:. ;andlin" of cash Petty cash will be to''ed u' on the )im' rest) system& where the amount s'ent is reimbursed. %t is intended for small items& u' to Q20. 1nything over this should be 'aid by che;ue where 'ossible. !he im' rest has a balance limit of Q240. !he 'etty cash balance will be reconciled when re-storing the im' rest balance& or monthly if this is more fre;uent. 1ll cash collected from .inance will be signed for& and recei'ts will be issued for all cash returned. "'ecific e(tra cash floats 6for tills at events etc.7 should be arranged with the .inancial *ontroller. !he 'erson signing for the float is res'onsible for ensuring cash and recei'ts are returned as soon as 'ossible after the event etc. Bo further floats may be issued to that 'erson& or another 'erson in the same de'artment for a similar 'ur'ose& unless the 'revious float has been accounted for. Mi(ing money or recei'ts from different 'etty cash sources creates large accounting 'roblems. %n a real emergency& where another cash float has to be used for something& a clear record must be ke't& and brought to .inance "ection)s attention. 1ny cash income will be banked via .inance& and not used for 'etty cash e('enditure. "uch cash will be 'assed to .inanceJ

weekly for cash received in-house monthly for 'ay'hone %mmediately after the end of an out-of-house event. wherever 'ossible. 1''ro'riate

*ash will be ke't in locked metal cabinets arrangements will be made for till security. <. Salaries! payroll and freelancers

1B -+=1B%"1!%-B is re;uired to o'erate the P1H# system& and make annual returns to the %nland +evenue. 1ll 'eo'le working directly for 1B -+=1B%"1!%-B& whether 'ermanent or tem'orary& must 'rovide a PE4& or sign a PE3 or student e(em'tion certificate& or give reasons why they can)t. 1ll 'ayments will be made by che;ue or direct bank credit. %t is the nature of 1B -rganiCation9s activities that a large number of freelance consultants will be used. .reelance contractors will only be taken on when authoriCed in accordance with section above. Aith a few e(ce'tions& they will be treated as selfem'loyed& and contracts with such 'eo'le must clearly indicate this. However& work in other areas of activity must be assumed to be em'loyed by 1B -+=1B%"1!%-B and so sub>ect to P1H# R B%*. .inance will obtain clarification of any unclear areas as needed. Payments for additional work over and above standard hours must be a''roved by the relevant Ge'artment Head. *lear written authoriCation must be given in ade;uate time for .inance to 'rocess it for the relevant 'ayroll. !hese claims are financial records& and should be treated in the same way as any other. Payment will usually be made via the BatAest 1uto'ay service& direct to em'loyees) bank account. !he salary 'ayment listings will be checked by the .inancial *ontroller.

"alaries will be 'aid on the 2?th of the month& or nearest working day& a'art from in Gecember& when it will be the 2<rd. Pay scales and new 'osts/re-structuring are a''roved by the Girector& and are revised by March for im'lementation in 1'ril. !he $oard of !rustees will set the Girector)s remuneration. 1''ointments to e(isting 'osts are the res'onsibility of the a''ro'riate Ge'artment Head 6or Girector for senior 'ositions7. "taff loans are not issued& but advances may be made against salary due& by arrangement with .inance.

!he finance section is res'onsible forJ

Paying each em'loyee in accordance with the a''roved terms and conditions& and issuing 'ay sli's. -'erating the P1H# system& kee'ing the re;uired records& issuing PE4s and P30s& and communicating with the ta( office as a''ro'riate. Making the correct deductions for %ncome !a(& B%& court orders and any other a''ro'riate deduction authoriCed by staff: ensuring that deductions are 'aid to the correct body& and necessary returns made. 1dministering the "tatutory "ick Pay and "tatutory Maternity Pay schemes& alongside any additional related benefits 'rovided by 1B -+=1B%"1!%-B.

=. Income !he ma>ority of income received by 1B -+=1B%"1!%-B is from sales of services and goods 'roduced. Aith the e(ce'tion of booksho' sales& invoices will be issued for every sale as soon as 'ractical. .or com'leteness of customer and sales information& this includes where 'ayment is received with order. 1ll invoices should be raised on 1B -+=1B%"1!%-B letterhead& or in a format agreed with the .inancial *ontroller and auditors& and be drawn u' in accordance with 1B -rganiCation9s standard invoice re;uirements. %n 'articular S1! invoices need to meet HM *ustoms and #(cise re;uirements& and must include the S1! registration number& S1! rate and S1! amount. 1ll invoices will be se;uentially numbered& with each area of activity having its own 'refi( reference& agreed with .inance. 1ny accidental deviations from such se;uences must be notified to .inance. %nvoice listings will be 'roduced on a regular basis by the de'artments generating them. !his is at least monthly& to fit in with the re'orting system& although high volume activities are e('ected to be listed weekly. -utstanding invoice 'ayments will be followed u' at least monthly by the relevant de'artment. %nformation about non-routine and all grant income must be 'assed to .inance with the che;ue or remittance advice. !his will be filed by .inance for reference& and used to ensure such income is correctly recorded in the accounts and grant conditions etc. noted. ,ack of documentation will lead to such items being )held on sus'ense). %t is the res'onsibility of the 'erson gaining the grant to ensure all grant income is claimed as it becomes due or available& and that all a''ro'riate staff and the .inance "ection are aware of relevant grant conditions and e(actly how the grant is to be e('ended.

Post o'ening 6and control of che;ues and cash in7 will be sub>ect to random management checks. !he 'rocess will be written down& so that there is a clear standard for those doing the work regularly& and others covering or checking.

>. Bank accounts 1B -rganiCation9s bankers areJ

Bational Aestminster $ank 'lc& 1 $ranch - *urrent& $usiness +eserve R *a'ital +eserve. *1.*ash high interest che;ue account.

1n automatic swee' arrangement between current and reserve accounts is o'erated. !hese arrangements are sub>ect to review& in the light of what is most advantageous in terms of cost and service. 1ll changes are to be authoriCed by the !rustees. 1ll income will be 'aid into the current accounts as soon as 'ossible& not less than once a week. !he make u' of each banking will be clearly recorded& for later com'uter entry. ?. Books of account and records Pro'er accounting records will be ke't. !he accounts systems are based around com'uter facilities& using "age and #(cel& but manual/'a'er records will also be used if a''ro'riate. 1t a minimum& the following records will be ke'tJ

1''ro'riate control accounts 6i.e. bank control& 'etty cash control& S1! control7. "alary control account. Monthly trial balances.

Petty cash and bank accounts will be reconciled at least monthly& and S1! returns 'roduced on the re;uired ;uarterly cycle. 1ll vouchers entered into the com'uter system will be clearly initialed by the 'erson entering it& along with date and accounts reference. 1ll income/e('enditure information will be recorded within three days. 1ll corrections and ad>ustments will be clearly noted in written 85ournal9 giving reasons for them& with su''orting documentation where available. Purchase ,edger& other che;ue 'ayments and banking sheets will be filed in the a''ro'riate reference order& with any su''orting documentation. 1ll 'etty cash vouchers& che;ue stubs etc. will be retained for audit and for statutory 'ur'oses thereafter. 1ll fi(ed assets costing more than Q240 6or such other level as may from time to time be agreed by the trustees7 will be ca'italiCed in the accounts and recorded in a fi(ed assets register. !his register will record details of date of 'urchase& su''lier& cost& serial no. where a''licable& descri'tion and in due course details of dis'osal.

@. Bud"et settin" 2 monthly income and e('enditure budgets will be 're'ared in time for final a''roval by the $oard of !rustees in Gecember& before the start of the financial year under consideration. Ge'artment budgets are 're'ared by the Head of Ge'artment& working with the .inancial *ontroller. *entral management budgets are 're'ared by the .inancial *ontroller in consultation with the Girector. !he Management !eam will 'lay a lead role in ensuring that budgets are set fairly& efficiently and in time. 1''roval of the budgets is by recommendation of the Management !eam to the $oard of !rustees. !he a''roved budget will be used as a base to construct a cash-flow forecast for the year& which will be u'dated ;uarterly.

23. 5inancial monitorin" and audit 1ll budget holders will receive a''ro'riate& regular re'orts of income and e('enditure against budget. !he Management !eam will receiveJ

Aeekly sna'shots of cash in hand& total creditors and total debtors. Aeekly gra'h of cash in hand. Monthly re'orts of income and e('enditure versus budget - within two weeks of month end.

Getailed monthly 'ayroll re'orts will be 'roduced. Getailed cash-flow re'orts will be 'roduced as a''ro'riate. 1B -rganiCation9s financial year is from st 5anuary to < st Gecember. 1nnual accounts will be submitted for audit& as re;uired under the *om'anies 1ct& charity regulations and grant conditions& 're'ared 'er "-+P for *harities and any other relevant accounting conventions. .inal draft should be ready for and 'assed by $oard of !rustees in March& with audited accounts signed at the 5une meeting. 22. /ole of Treasurer !he !reasurer works in close co-o'eration with& and 'rovides su''ort and advice to& the .inancial *ontroller. "'ecific res'onsibilities are toJ

=uide and advise the $oard in the a''roval of budgets& accounts and financial statements& within a relevant 'olicy framework. Kee' the $oard informed about its financial duties and res'onsibilities. 1dvice the $oard on the financial im'lications of 1n -rganiCation9s strategic 'lans and key assum'tions included in management)s o'erational 'lan and annual budget. *onfirm that the financial resources of 1n -rganisation meet 'resent and future needs.

@nderstand the accounting 'rocedures and key internal controls& so as to be able assure the $oard of 1n -rganiCation9s financial integrity. #nsure that the accounts are 'ro'erly audited& that acce'ted recommendations of the auditors are im'lemented& and meet the auditor at least once a year. .ormally 'resent the accounts at the 1=M& drawing attention to im'ortant 'oints. Monitor 1n -rganiCation9s investment activity and ensure its consistency with 'olicies& aims& ob>ectives and legal res'onsibilities

26. /ole of 'ana"ement !he Management team consists of Heads of !his !hat and the -ther& .inancial *ontroller& 'lus the Girector. #ach has res'onsibility for their individual de'artment)s financial 'erformance and ensuring that the de'artment com'lies with .inancial Procedures. !hey will receive weekly sna'shots and monthly management accounts& kee'ing ade;uate records to be in control between monthly re'orts. !he !eam will review finances thoroughly at its monthly meetings. 28. /ole of Board of Trustees !he committee is res'onsible forJ

1''roving the budget for the year. 1''roving signatories to the bank accounts. 1''ointments of staff where not delegated to the Girector. +eceiving re'orts from the Management !eam on areas of concern. 1''roving e(ce'tional items of e('enditure. Monitoring the financial 'osition based on monthly re'orts& with advice from the Girector. 1''roving the annual accounts& auditors re'ort and a''ointment.

2:. /ole of 5inancial &ontroller !he .inancial *ontroller is the lead 'erson for 'rocessing all changes and e(ce'tional items& and will assist the !reasurer in any financial matter connected with the organiCation. !he .inancial *ontroller will ensure that ade;uate security 'recautions are taken to safeguard financial and other assets.

5.

-naly7e the Indian scenario of 5IIs since then and its effect on India as an investment destination for 5IIs. Please e plain with relevant fi"ures.

5)/EI,( I(STIT+TI)(-. I(4EST)/S A5IIB %nstitutional %nvestor is any investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. %nstitutional investors include hedge funds& insurance com'anies& 'ension funds and mutual funds. !he growing %ndian market had attracted the foreign investors& which are called .oreign %nstitutional %nvestors 6.%%7 to %ndian e;uity market& and this study 'resent try to e('lain the im'act and e(tent of foreign institutional investors in %ndian stock market and e(amining whether market movement can be e('lained by these investors. %t is often hear that whenever there is a rise in market& it is e('lained that it is due to foreign investors) money and a decline in market is termed as withdrawal of money from .%%s. !his study tries to e(amine the %nfluence of .%% on movement of %ndian stock e(change during the 'ost liberaliCation 'eriod that is 22 to 200/. .oreign investment refers to investments made by the residents of a country in the financial assets and 'roduction 'rocesses of another country. !he effect of foreign investment& however& varies from country to country. %t can affect the factor 'roductivity of the reci'ient country and can also affect the balance of 'ayments. .oreign investment 'rovides a channel through which countries can gain access to foreign ca'ital. %t can come in two formsJ foreign direct investment 6.G%7 and foreign institutional investment 6.%%7. .oreign direct investment involves in direct 'roduction activities and is also of a medium- to long-term nature. $ut foreign institutional investment is a short-term investment& mostly in the financial markets. .%%& given its short-term nature& can have bidirectional causation with the returns of other domestic financial markets such as money markets& stock markets& and foreign e(change markets. Hence& understanding the determinants of .%% is very im'ortant for any emerging economy as .%% e(erts a larger im'act on the domestic financial markets in the short run and a real im'act in the long run. %ndia& being a ca'ital scarce country&

has taken many measures to attract foreign investment since the beginning of reforms in 22 . %ndia is the second largest country in the world& with a 'o'ulation of over billion 'eo'le. 1s a develo'ing country& until recently& however& %ndia has attracted only a small share of global .oreign Girect %nvestment 6.G%7 and foreign institutional investment 6.%%7 'rimarily due to government restrictions on foreign involvement in the economy. $ut beginning in 22 and accelerating ra'idly since 2000& %ndia has liberaliCed its investment regulations and actively encouraged new foreign investment& a shar' reversal from decades of discouraging economic integration with the global economy. .oreign %nstitutional %nvestment 6.%%7 is defined as Man investment that is made to ac;uire a lasting interest in an enter'rise o'erating in an economy other than that of investorN.

The policy framework for permittin" 5II investment was provided under the ,overnment of India "uidelines vide Press (ote date September 2:! 2@@6. The "uidelines formulated in this /e"ard was as followsC 7 .oreign %nstitutional %nvestors 6.%%s7 including institutions such as Pension .unds& Mutual .unds& %nvestment !rusts& 1sset Management *om'anies& Bominee *om'anies and %ncor'orated/%nstitutional Portfolio Managers or their 'ower of attorney holders 6'roviding discretionary and non-discretionary 'ortfolio management services7 would be welcome to make investments under these guidelines. 27 .%%s would be welcome to invest in all the securities traded on the Primary and "econdary markets& including the e;uity and other securities/instruments of com'anies which are listed/to be listed on the "tock #(changes in %ndia including the -!* #(change of %ndia. !hese would include shares& debentures& warrants& and the schemes floated by domestic Mutual .unds. =overnment would even like to add further categories of securities later from time to time. <7 .%%s would be re;uired to obtain an initial registration with "ecurities and #(change $oard of %ndia 6"#$%7& the nodal regulatory agency for securities markets& before any investment is made by them in the "ecurities of com'anies listed on the "tock #(changes in %ndia& in accordance with these guidelines. Bominee com'anies& affiliates and subsidiary com'anies of a .%% would be treated as se'arate .%%s for registration& and may seek se'arate registration with "#$%. E7 "ince there were foreign e(change controls in force& for various 'ermissions under e(change control& along with their a''lication for initial registration& .%%s were also su''osed to file with "#$% another a''lication addressed to +$% for seeking various 'ermissions under .#+1& in a format that would be s'ecified by +$% for the 'ur'ose. +$%)s general 'ermission would be obtained by "#$% before granting initial registration and +$%)s .#+1 'ermission together by "#$%& under a single window a''roach. 47 .or granting registration to the .%%& "#$% should take into account the track record of the .%%& its 'rofessional com'etence& financial soundness& e('erience and such other

criteria that may be considered by "#$% to be relevant. $esides& .%% seeking initial registration with "#$% were be re;uired to hold a registration from the "ecurities *ommission& or the regulatory organiCation for the stock market in the country of domicile/incor'oration of the .%%. 37 "#$%)s initial registration would be valid for five years. +$%)s general 'ermission under .#+1 to the .%% would also hold good for five years. $oth would be renewable for similar five year 'eriods later on. /7 +$%)s general 'ermission under .#+1 would enable the registered .%% to buy& sell and realiCe ca'ital gains on investments made through initial cor'us remitted to %ndia& subscribe/renounce rights offerings of shares& invest on all recogniCed stock e(changes through a designated bank branch& and to a''oint a domestic *ustodian for custody of investments held. ?7 !his =eneral Permission from +$% would also enable the .%% toJ a. -'en foreign currency denominated accounts in a designated bank. 6!here could even be more than one account in the same bank branch each designated in different foreign currencies& if it is so re;uired by .%% for its o'erational 'ur'oses7: b. -'en a s'ecial non-resident ru'ee account to which could be credited all recei'ts from the ca'ital inflows& sale 'roceeds of shares& dividends and interests: c. !ransfer sums from the foreign currency accounts to the ru'ee account and vice versa& at the market rate of e(change: d. Make investments in the securities in %ndia out of the balances in the ru'ee account: e. !ransfer re'airable 6after ta(7 'roceeds from the ru'ee account to the foreign currency account6s7: f. +e'atriate the ca'ital& ca'ital gains& dividends& incomes received by way of interest& etc.and any com'ensation received towards sale/renouncement of rights offerings of shares sub>ect to the designated branch of a bank/the custodian being authoriCed to deduct withholding ta( on ca'ital gains and arranging to 'ay such ta( and remitting the net 'roceeds at market rates of e(change: g. +egister .%%)s holdings without any further clearance under .#+1. 27 !here would be no restriction on the volume of investment minimum or ma(imumfor the 'ur'ose of entry of .%%s& in the 'rimary/secondary market. 1lso& there would be no lock-in 'eriod 'rescribed for the 'ur'oses of such investments made by .%%s. %t was e('ected that the differential in the rates of ta(ation of the long term ca'ital gains and short term ca'ital gains would automatically induce the .%%s to retain their investments as long term investments. 07 Portfolio investments in 'rimary or secondary markets were sub>ect to a ceiling of <0P of issued share ca'ital for the total holdings of all registered .%%s& in any one com'any. !he ceiling was made a''licable to all holdings taking into account the conversions out of the fully and 'artly convertible debentures issued by the com'any. !he holding of a single .%% in any com'any would also be sub>ect to a ceiling of 0P of total issued ca'ital. .or this 'ur'ose& the holdings of an .%% grou' would be counted as holdings of a single .%%. 7 !he ma(imum holdings of 2EP for all non-resident 'ortfolio investments& including those of the registered .%%s& were to include B+% cor'orate and non-cor'orate investments& but did not include the followingJ a. .oreign investments under financial collaborations 6direct foreign investments7& which are 'ermitted u' to 4 P in all 'riority areas.

b. %nvestments by .%%s through the following alternative routesJ i. -ffshore single/regional funds: ii. =lobal Ge'ository +ecei'ts: iii. #uro convertibles. 27 Gisinvestment would be allowed only through stock e(change in %ndia& including the -!* #(change. %n e(ce'tional cases& "#$% may 'ermit sales other than through stock e(changes& 'rovided the sale 'rice is not significantly different from the stock market ;uotations& where available. !hese guidelines were suitably incor'orated under the "#$% 6.%%s7 +egulations& 224. !hese regulations continue to maintain the link with the government guidelines through an inserted clause that the investment by .%%s should also be sub>ect to =overnment guidelines. !his linkage has allowed the =overnment to indicate various investment limits including in s'ecific sectors.

!hese features of the market have a number of im'lications. !o start with& .oreign %nstitutional %nvestors 6.%%s7& whose e('osure in %ndian markets is an e(tremely small share of their international 'ortfolio& making %ndia almost irrelevant to their international strategies& have an undue influence on the 'erformance of the markets. !he sums they invest or withdraw can move markets in the u'ward and downward direction& as recent e('erience has am'ly demonstrated. !his forces governments that are keen to have them constantly making net 'urchases and driving markets u'wards to bend over backwards in a''easing them. 1 corollary of this influence of the .%%s is that any market 'layer who is able to mobiliCe a significant sum of ca'ital and is willing to risk it in investments in the market can be a ma>or influence on market 'erformance. !his e('lains the im'ortance of o'erators like Harshad Mehta and Ketan Parekh& the $ig $ulls of the 220s& who rose from being small traders to become correlates and were lioniCed for their resource mobiliCation and risk-taking abilities& which made them movers of markets. Ketan Parekh is re'orted to have risked his investments on a few sectors 6the so-called technology stocks7 and few firms& and till the recent debacle always seemed to come out right in terms of his >udgment. He had& it now a''ears& a ma>or role to 'lay in rigging share 'rices& as he allegedly did in the case of =lobal !rust $ank 6=!$7 shares 'rior to the aborted merger of @!% $ank and =!$.

=! =! =! =! =!

for for for for for

22< 22E 224 223 22/

&onsolidated Summary of 5II Investment Trends ,ross ,ross Sales(et (et Investment&umulative Purchases /s. &r Investmen +SD m at(et /s. &r t /s. &r monthly e rate Investment +SD m at monthly e rate 2&33 .2 33.? 2&424. ?2/.2 ?2/.2 2&23/.2 2&E/3. 3&/2 .2 2& 3E.? 2&22 .2 3&334.2 2&? 2.2 <&?4<.? & 2 .E E& ?<.E 4&/<2.2 E&2<4.3 0&?0<.3 <&04?.2 /&2E .3 ?&223.4 2&/ 2.2 3&20/.< &/E3./ ?&2??.2

=! for 22? <&?22.? =! for 222 </&2 .4 52000 3& 22./ .2000 2&/3 .3 M2000 2&?20. 12000 ?&<4E.4 M2000 3&<0/.E 52000 4&<2?.? 52000 4&?4/.3 12000 4& <E.0 "2000 /& E2.3 -2000 E&EE0./ B2000 E&/2 . G2000 E&E4 .4 =! for 2000 //&333.3 5200 ?&30 .0 .200 3&4?3.E M200 3&2/?.0 1200 4&0/2.2 M200 <&2/3.0 5200 E& ?.2 5200 <&334.0 1200 <&2E?.4 " 200 <</0. - 200 <&?24./ B200 <&2/E.2 =rand !otal for4<&<E<.? 200 =rand !otal till2<4&<?2.E 2?/

4&</2./ <0&4 E./ 4&2<<.2 3&3//.4 ?&32 .2 4&/3/.? 3&04E./ 3&<<<.3 /&242.E <&?/4.2 3&2< .< E&342.< <&??4./ 4&0?3.3 / & 44.E E&<2/./ E&/22./ 4&2 2.E <& 0 . <&<00.0 2&2<2.2 <& ?/.< 2&/E3.< <20<.E <&0 .< <&2/0.4 E0&2/2.0 ?0&<<?./

6 &E/2.27 3&323.? 23.3 <&0?E. & 2?.? 2&4?3./ 242./ 62<E.?7 6 &E0 .?7 &24?.2 2 ?.< 62 ?.47 204.E 63<4. 7 3&4 .2 E&2/<.< &?3<.? &/34.3 &2/?.? 3/3. & /2./ E//./ 402.< 64<<.E7 ??E.E <.? <&03E.? 44&0E<.?

6<<?.07 &442.2 E4. /0/.2 2/4.0 42<.E 4/.4 62 2.37 6< <./7 2? . E/.? 6E/.37 24.< 6 <4.?7 &E22.2 2 E. E00.E </2.4 E2E.4 EE.4 24 .E 0 .3 03.4 6 <.27 ?4.3 0.? 2&/24.?

?&340.0 0&202.2 0&244.0 0&232.2 &2</.< &?<0./ &??/.4 &3/E.2 &<3 .2 &3E2.E &320. &3E2.4 &?</.? &/02. &/02. 2&3 3.2 <&0 3.3 <&<23. <&?20.3 <&234. E&2 3.4 E&< ?. E&E2E./ E&< .4 E&E2 ./ E&E2/.2 .

%nvestment by .%%s has seen a steady growth since the o'ening of the e;uity markets in "e'tember 222. !he share of .%%s in total .P% has increased from E/P in 22<-2E to around /EP in 200 -2002. .%%s have also ac;uired a significant 'resence in the %ndian stock market. !he share of their trading in total turnover attained a high of almost <0P in -ctober 200 . %n total market ca'italiCation .%%s account for about <P and they make about 40-30P of average daily deliveries on the stock market.