Presented by:

Vasu ruthvick
Preetish Dhulshetti
Somnath benarjee
INTERNATIONAL SCHOOL OF BUSINESS & MEDIA
BANGALORE
Pied Pieper of Dalal
Street
 Ketan Parekh is a former stock broker from
Mumbai, India Popularly known as ‘Bombay
Bull’.
 KP arrested on 30 march 2001 for the security
market scam known as Ketan Parekh scam.
 He was convicted in 2008, for involvement in
the Indian stock market manipulation scam in
late 1999-2001.
 Currently he has been debarred from trading in
the Indian stock exchanges till 2017
 He was trainee of Harshad Mehta.
 Ketan Parekh can be best described as the Pied
Piper of Dalal Street.
 Parekh came from a family of brokers which
helped him to create a trading ring of his own.
How it happened?
 Formed a network of brokers

 Identified and targeted 10

stocks.

 Zee telefilms went up from

Rs. 127 to Rs. 2330, Himachal
Futuristic – Rs. 194 to 2553.
Funding Mechanism
 Simple borrowing mechanism

 Badla System
Badla System
 Indigenous carry-forward system invented on the
Bombay Stock Exchange
 Badla trading involved buying stocks with borrowed
money.
 The stock exchange acts as an intermediary.
 Interest rate determined by the demand for the
underlying stock
 Maturity not greater than 70 days
How it happened?
 When stock prices were high, they were pledged with
banks as collateral.

 No problems as long as prices were rising.

How was it detected
 Stock market crash of 2000
 KP started borrowing heavily
 Attempted to rig the price upwards and later sell.
 But failed to do so.

 IT department found discrepancies in sources of funds

of KP
 Routine market surveillance of 5 stocks
FACTORS THAT HELPED KETAN PAREKH
 Though KP was a successful broker, he did not have money to buy large
stakes as he held the stakes of more than Rs 750 million in July
1999, according to a report.

 Analyst claimed that he had borrowed from various companies and banks for
this purpose.

 His financing method was fairly simple.

 He bought shares when they were trading at low price and saw the prices go
up in the bull market while continuously trading.

 When the prices was high enough, he pledged the shares with banks as
collateral for funds, and also borrowed from the companies like HFCL.
CONT…….
 It could not have been possible without the involvement of banks.

 A small Ahmadabad-based bank, Madhavapura Mercantile

Cooperative Bank (MMCB) was KP’s main ally in the scam. KP
and his associate started tapping the MMCB for funds in early
2000.
Implications
 Ketan Parekh was arrested by CBI on 30th March
2001. He was charged defrauding Bank of India by
almost $20 Million
 Global Trust Bank and Bank of India 's merger failure

 RBI ordered some banks to furnish data of Capital

market exposure
 SEBI inspected the books of several brokers suspected
of triggering the crash
Implications
 One of the biggest Fall in BSE -700 points
 KP and other traders were banned from trading for 17
years
 Short selling was banned for 6 months.
 Badla system was banned
 All shares that were put as collaterals should be done
so through NSE and BSE.
 10% additional deposit Margins.
IMPACT OF THE SCAM ON
FINANCIAL INSTITUTIONS
 Ketan Parekh was threatening to sue the Bank of India for defamation
because it complained of bouncing of 1.3 billion pay orders issued to the
broker by Madhavpura Mercantile Cooperative Bank
 Investigations by SEBI and CBI reveal that sheer magnitude of money
moved by Parekh was a staggering 64 billion
Steps taken by SEBI after scam
 SEBI launched immediate investigation on the scam.
• It suspended all the broker member directors of
BSE’S governing board
 SEBI also banned trading by all stock exchange
presidents, vice presidents and treasurers
 SEBI banned naked short sales.
 RBI started inspecting accounts and sub-accounts
twice a year in spite of once in two year.
 SEBI allowed banks for collateralised lending only
through BSE and NSE