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Tuesday, 13 March, 2001, 13:40 GMT Scandal rattles India's investors

The finance minister is trying to reassure investors The Indian government has moved to reassure investors shaken up by an insider trading scandal on the Bombay Stock Exchange (BSE).

The Indian finance minister Yashwant Sinha has proposed a series of measures to strengthen the power of the market's regulator and improve confidence.

Since allegations of insider trading came to light on 2 March, the stock market has dropped more 12%.

The government and the regulator would "ensure that capital markets operate in an orderly, transparent, safe and fair manner for all investors," Mr Sinha said.

"The guilty shall be brought to book without fear or favour and none shall be spared," he added.

Bombay's stock index hit a 22-month low during the morning, before recovering to 3,540.65. The market closed down over 6%.

Insider trading

The insider-trading allegations were initially levelled at the former president of the stock exchange, Anand Rathi.

He was accused of passing market-sensitive information to other brokers. Mr Rathi, who has denied this, resigned last week to "maintain the dignity" of the president's office.

The regulator - the Securities and Exchange Board of India (SEBI) - has disallowed Mr Rathi from undertaking "any fresh business as a broker until further orders".

On Monday, SEBI suspended all brokers that were also directors of the exchange's governing board.

This included Deena A. Mehta, the vice president of the exchange and acting president, following Mr Rathi's resignation.

For a few days, Ms Mehta had been the first woman president of the 126-year old exchange.

Six other broker directors were also suspended until further notice.

New measures

The finance minister's new measures include a proposal to turn India's stock exchanges into companies.

Mr Sinha said in a statement to parliament that corporatisation would mean "ownership, management and trading membership would be segregated from each other".

SEBI's power in the market would also be strengthened by legislative changes to the provisions of the SEBI Act 1992.

In addition, 200 stocks would be added to an automated lending and borrowing system to improve liquidity in the market.

If brokers don't have a stock that is due to be delivered for settlement of a trade, they can use the system to borrow the stock.

"These measures are very reassuring and funds are buying on hopes the carnage will end soon," said Rahul Sanghvi, an equity dealer with K.B.S. Capital Management.

A payments crisis last week on the Calcutta Stock Exchange has also contributed to the market's overall decline.

-- Rachel Gibson (rgibson@hotmail.com), March 13, 2001