A book released in 2018 titled “A Game Changer’s Memoir,”  recounts the events that occurred at SEBI during the tenure of its Chairman, GN Bajpai during 2002-2005. Most of you are never going to read it, it is after all a story of how pro-active and effective the regulator was in making institutional changes and in facilitating transparency of transactions. Boring!  But two of his stories caught my eye.

The first recounts the events of May 14, 2004 when the SENSEX took barely a few hours to drop 17% following the announcement of Congress being declared the largest party in the election. Circuit breakers (which are automated temporary stops when markets freak-out) had to be applied twice and Mr. Bajpai was saddled with the responsibility of deciding whether the market should open again that day. Tough decision,  after all markets could have dropped another many percent or they could have recovered somewhat. He decides that trading should resume and of course the latter happens. (FYI, the SENSEX was about 4300 then, versus 37000 about now).The second story to catch my eye was about SEBI intervention in “dabba” trading. Since scams are something that concern potential investors, I feel like writing about them, if only to make you notice how far Indian markets have come. But back to my story.

Essentially “dabba” trades were pure speculations on stock price movements, illegally conducted, away from the exchanges where trading is supposed to take place. A group of people would gather in some location, a reference price would be set on a stock by trading a few shares in the formal market. Then, a second date would be set for squaring off the transaction, losers paying the winners. The locations were often in cities with  regional stock exchanges (which were not too well regulated), and the operations were quite sophisticated. The size of these activities was also large, the book mentions a turnover of as high as Rs 2000 crore daily, where the regular exchange turnover was about Rs. 7000 crore. Think about it, much of it worked on trust, there were no transactions costs such as stamp duty, broker fee, exchange fee, turnover fee, margin costs. Of course, that trust was abused, the so-called brokers would make fake transactions and vanish when they had to pay money. Little wonder that the retail investor in India remains reluctant to embrace equities! Scams have lurked in every corner.  At the time, SEBI had only recently been given permission to issue “seize and desist” orders and this was perhaps the first ever time they acted on this permission, sending in officers to break-up these illegal “dabba” operations.