Suspension and delisting -protecting investors or harming investors

[C.A. DEV KUMAR KOTHARI]

Earlier article:

Under the heading "Investor's protection" an article titled "STOCK EXCHANGE MUST ACT IN INVESTOR FRIENDLY MANNER "was webhosted on this website vide URL

http://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=764.

In the said article author has discussed various measures adopted by the Stock Exchange, with the avowed purpose of surveillance and investor protection. In the said article author had pointed out that many measures taken by BSE really goes against the interest of investors. It was discussed that suspension of trading and delisting totally goes against interest of investors and in fact promote and encourage mal-practices adopted by promoters which lead to suspension and delisting and promoters gaining out of the same as they become less answerable. Therefore it was suggested that such measures should not be adopted.

Recently the Bombay Stock Exchange (BSE) has decided to suspend w.e.f. 19.07.2010 trading in the securities of eight companies for non-compliance of conditions of some or other clauses of the Listing Agreement.

News report from website of The Economic Times:

Source: http://economictimes.indiatimes.com/Market-News/articleshow/6064540.cms

The report is analyzed below:

BSE has decided to suspend trading in the securities of eight companies for non-compliance with clauses of the Listing Agreement. The trading in these firms will be suspended from July 19, the Exchange said in a release here today. The companies, which had failed to comply with various provisions of the agreement up to the quarter ended September 2009, are Hytone Texstyles Ltd, Mukat Pipes, ORG Informatics, Parsoli Corporation, Rishab Financial Services, Shamrock Industrial Company, Typhoon Holdings and Voltaire Leasing & Finance Ltd, the release said.

The BSE, however, said in case a company complies to the satisfaction of the exchange, with all the provisions of the agreement:

a. on or before July 9, 2010, then trading in its securities will be suspended for 5 days -- up to July 23.

b. on or before August 3, then the trading in its securities will be suspended for 30 days -- up to August 17.

c. in case a company fails to comply with the listing agreement norms to the satisfaction of the exchange on or before August 3, then the suspension will continue till such time the firm complies with the procedure prescribed for revoking suspension, the release added.

Notice from website of BSE:

http://www.bseindia.com/cirbrief/new_notice_detail.asp?noticeid={8B904BFE-896D-47AC-87C6-A065B6F1A56C}noticeno=20100618-21&dt=6/18/2010&icount=21&totcount=35&flag=0

Notice no:	20100618-21
Notice date:	Friday, June 18, 2010 4:21:47 PM
Subject:	Suspension of companies
Category:	Company related
Segment Name:	Equity

Contents:

Sub: Suspension of companies

Trading Members are hereby informed that, despite giving various reminders and subsequent show-cause notices, the undermentioned 8 companies, have failed to comply with various provisions of the Listing Agreement till quarter ended September 2009 -

SR. NO.	SCRIP CODE	COMPANY NAME
1	514258	Hytone Texstyles Ltd
2	523832	Mukat Pipes Ltd
3	517195	ORG Informatics Ltd
4	530071	Parsoli Corporation Ltd
5	531218	Rishab Financial Services Ltd
6	531240	Shamrock Industrial Company Ltd
7	512307	Typhoon Holdings Ltd
8	509038	Voltaire Leasing & Finance Ltd

Consequently, trading in securities of these 8 companies will be suspended w.e.f. Monday, July 19, 2010; on account of non-compliance with the provisions of the Listing Agreement, for the following period(s)-

(i) in case, the company complies (to the satisfaction of the Exchange) with all the provisions of the Listing Agreement on or before Friday, July 9, 2010; trading in securities of the company will be suspended for 5 days i.e. upto Friday, July 23, 2010.

(ii) in case a company complies (to the satisfaction of the Exchange), with all the provisions of the Listing Agreement on or before Tuesday, August 3, 2010; the trading in securities of a company will be suspended for 30 days i.e. upto Tuesday, August 17, 2010.

(iii) however, in case the company fails to comply with the provisions of the Listing Agreement, to the satisfaction of the Exchange on or before Tuesday, August 3, 2010; the suspension will continue till such time the Company complies with the procedure prescribed for revoking suspension in a scrip.

It may be noted that suspension of trading in securities of a company will be revoked only if the company has complied with all the provisions of the Listing Agreement upto the latest quarter for which the compliances are required.

If any of the Trading Members require any further clarification on the above, they may please contact Ms. Smita Dave (22728073), Ms. Arpita Joshi (22728384) or Mr. Ajit Sawant (22728171).

Ravindra Palande

Asst. General Manager

Department of Corporate Services.

June 18, 2010

THIS IS A COMPUTER GENERATED NOTICE AND DOES NOT REQUIRE SIGNATURE

Nature of notice:

The above notice is placed on the website of BSE in notifications. The notice does not mention anything about the defaults committed by companies. The clause which has not been complied with by company - the nature and extent of non-compliance and its gravity etc. nothing has been mentioned. It is also not mentioned as to whether any show cause notice was given to the company or not.

Investors are primarily concerned:

Suspension of trading concerns investors more than any other person even more than to the company. This is because suspension makes the investment illiquid. A continuous suspension can also lead to delisting of shares. Therefore, the notice must clearly disclose the reasons for suspension. If investors are informed about reasons and nature of non-compliance, the investors can also take steps and pursue the company to make compliances. Investors can ask the management as to why there was no compliance?

Information provided by companies to BSE and trading:

After reading the news author visited various web pages of the website of BSE to find out information available at BSE websites. The information gathered and complied with are given below in the table with remarks of author:

Name of company	BSE code	Last traded ddmmyy rate	Last result available on BSE year ended or quarter ended ddmmyy	Last share holding pattern available for Quarter Ended ddmmyy	Last announcement Ddmmyy and nature	Remarks
Hytone Texstyles Ltd,	514258	180610 @10/-	YE 310309	QE310310	190310 -extension of FY to 300910 (18months)	Most of information are provided by company to BSE. Except quarterly results after 310309.
Mukat Pipes,	523832	180610 @8.90	YE 310309	QE310310	231209 up dates	Most of information are provided by company to BSE. Except quarterly results after 310309.
ORG Informatics	517195	180610 @ 9.34	QE 311209	QE310310	020310 up dates on AGM	Most of information are provided by company to BSE. Except quarterly results for last quarter ended310310
Parsoli Corpn.	530071	180610 @21.40	YE310309	QE310310	070410 resignation of director	Most of information are provided by company to BSE. Except quarterly results after 310309.
Rishab Financial Services,	531218	180610@8.70	QE311209	QE311209	300909 outcome of AGM	Most of information are provided by company to BSE. Except quarterly results for last quarter ended310310
Shamrock Industrial Company,	531240	170610 @4.19	QE311209	QE300908	311209 Results for QE	Most of information are provided by company to BSE. Except quarterly results for last quarter ended310310
Typhoon Holdings	512307	220502@ 7.30	QE311209	QE311208	180209 result for QE 311208	Most of information are provided by company to BSE. Except quarterly results for last quarter ended310310. Trading in scrip has not taken place for a long time of about eight years
and Voltaire Leasing & Finance Ltd,	509038	200209 @2.10	QE310309	QE311210	150909 book closure- AGM	Most of information are provided by company to BSE.

From the above table it is found that these companies have mostly provided relevant information to BSE in some cases quarterly results are not available up to date.

It is also noticed that except two companies other six were traded recently. One company (Voltaire) was last traded on 20-02-09 and Typhoon was last traded more than eight years ago on 22-05-02.

Some mistakes on part of BSE cannot be ruled out:

Unreported results and share holding patterns can also be due to failure of BSE to webhost results, though company might have provided the same. Recently author had noticed some lapses on part of BSE. A company was listed few months ago on BSE, after being listed on CSE for many years. The Company had provided all relevant information for earlier period also. However, many of them were not webhosted by BSE. In case of few companies it was noticed that the result attached in Results section was of some other company. This is based on casual review by author about some companies with which he is concerned as investor or as consultant. A detailed search of information about all companies, may show that there are many more such instances of reports not being placed or misplaced on website of BSE.

Suspension is not justified:

As discussed above from the list of eight companies we find that there appears no justification of suspension of seven companies who are regularly traded and are regularly providing relevant information to BSE. In two cases some reports are missing, but that may be due to mistake of Case of BSE or due to certain exceptional circumstances.

Case of Typhoon Holdings:

In case of Typhoon there was no trading for long period. This can also be due to some reasons like unrealistic price bands fixed by the BSE by keeping lower circuit filters. If the BSE do not allow the price to go up or come down to a reasonable level, how there can be trading in shares. Author knows several companies in which case the price was fixed long ago when trading took place, then the BSE has fixed circuit filter of 5% and that was also reduced to 2.5%. due to this reason, trading cannot take place because trading can be only if one can place a bid or offer at some reasonable price.

Circuit filters - barriers in trading:

For example, in case of Vishnu Sugar (scrip code 507405) last trade was done on 190506 @ 1124.30 after which company had issued bonus shares in ratio of 1:1. Therefore last traded price is being shown as 2248.60. No trading has taken place after 190506 because the BSE allowed price movement only to the extent of +/ - 5% which is known as circuit filter. The company has requested the BSE to relax circuit filter so that reasonable level of price can be achieved. However, unfortunately BSE has further reduced circuit filter by half to + / - 2.50%. That means price can move only in range of 2192.35 to 2304.80. However, again now it appears that circuit filter is fixed without allowing any upward movement as per stock reach report taken on 200610 the circuit filter is shows as 2248.60 / 2034.50. It is observed that almost everyday there are bids to purchase shares of this company at highest price but there is no seller and any trading is not taking place. This is because the highest price fixed by the BSE is unreasonably low which cannot permit trading in absence of a willing seller.

In such circumstances questions which arises are as follows:

How trading can take place in shares of such company with unreasonable circuit filters fixed by BSE? And

How public holding can be increased?

Whether BSE is acting in interest of investors?

It can only be said that many of actions of the BSE like suspension of trading, delisting, lower circuit filters, frequent changes in circuit filters are not investor friendly measures. BSE must provide a suitable mechanism and suitable set of policies to ensure fair price determination of shares and liquidity in shares. BSE must not act in a prejudiced set of mind.

Circuit filters:

Frequent changes in circuit filters are not good for investors. In fact there is no need of circuit filter. If the price is allowed to move in any direction without limit, there can be wide fluctuation on some days to determine fair price of share. Once fair price is fixed or re-fixed, then there will not be very wide fluctuations. Price may fluctuate widely due to many reasons attributable to working of company, prospects of industry and economy etc. Suppose there is a fundamental positive change in fortunes of any company it may cause wide upward movement in price of shares. In case in such a situation price is not allowed to move upward then there will be no sellers but only buyers. Similarly in case there are negative reports, and price is not allowed to fall, there will be no buyer at the minimum price allowed.