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Ketan Parekh How it happened How was it detected Systematic Flaws Implications

Ketan Parekh is a former stock broker from Mumbai, India He was convicted in 2008, for involvement in the Indian stock market manipulation scam in late 1999-2001 Currently he has been banned 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

Formed a network of brokers Identified and targeted 10 stocks K-10 stock, KP Index Zee telefilms went up from Rs. 127 to Rs. 2330, Himachal Futuristic Rs. Rs. 194 to 2553

Simple borrowing mechanism 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

When stock prices were high, they were pledged with banks as collateral No problems as long prices were rising Pay order fraud
Issued cheques to MMCB drawn on BOI Went to BOI, SBI, and PNB and got pay orders discounted

Circular Trading Mechanism

D sells same stock to KP

KP

KP Sells stock to Trader A

Trader D

Price Rigging Stock Price

Trader A

C sells same stock to Trader D Trader C

B sells same stock to Trader C Trader B

A sells same stock to Trader B

Sucheta Dalal,Columnnist of TOI Stock market crash of 2000


KP started borrowing heavily Attempted to rig the price upwards and later sell But failed to do so International bear cartel

IT department found discrepancies in sources of funds of KP Routine market surveillance of 5 stocks

Trading system lag of one week Credit Check

High exposure allowed


Lack of records and margins at Calcutta stock exchange Lending without proper collateral

BOI complains to CBI-KP is arrested Global Trust Bank and Bank of India 's merger failure SBI's loss was minimal. So it did nothing MMTC was liquidated ; KP paid its stockholders Rs.400 Crores. He still owes them Rs. 400 Crores

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. Options and Index Future derivatives was introduced

-A small investor hit by KP scam in April 2001

Ketan Parekh is currently banned from stock trading,but in 2009, the Securities and Exchange Board of India find a variety of companies and other actors were trading on behalf of Parekh; 26 entities were banned from trading as a result of that investigation.

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