"Dekho main cigarette nahi pita, par jeb main lighter zaroor rakhta hoon, dhamaka karenge" - a line from the upcoming movie, Scam 1992, which is based on the infamous Harshad Mehta Story.
Every individual associated with this industry would have come across the Harshad Mehta scam in which he diverted bank funds in a large magnitude into the stock market to rig up prices by using bank funds based on forged bank receipts.
The average investor who has invested since those days has seen a tectonic shift in the evolution of the stock market. This can be attributed to stricter regulations, paradigm shift in technology and easy availability of information.
SEBI, which was set up in 1988 as an administrative body as part of the finance ministry was converted into a statutory body after the scam. Over the years, it was given wide-ranging powers to strengthen investor protection.
SEBI has over the years proactively brought in various regulatory changes and strengthened its surveillance systems. Investing is now far safer than what it was earlier. Even IPOs are much safer to invest today.
Earlier, it was not uncommon for companies to misuse the system, and come out with IPOs, to siphon off money from gullible investors.
Earlier, trading was done in physical shares and through an outcry system on the floor of the stock exchange, i.e. brokers had to shout out their buy/sell prices.
There was also a complete lack of transparency and brokerage rates were exorbitant. The National Stock Exchange was set up post the scam, which brought in to trade in dematerialised shares. Technology brought in much-needed transparency
The banking system was also strengthened, to ensure such misuse was plugged. Dematerialisation also made it much safer for banks. Today, there are strong margin requirements, with good tracking mechanisms.
Similarly, the front running scam that was reported a few days back was uncovered in a span of a few months, and at an early stage.
Brokerages have come down substantially. Transparency has increased and a buyer can on his screen see the best buyer and seller. Insider trading has significantly reduced, while the quality of IPOs has improved.
To conclude, no Harshad Mehta or Ketan Parekh can do any “dhamaka” and walk away hands-free anymore. Investor protection is a continuous effort and SEBI will continue to play an important role.
While the investor of the 90s can take solace from the fact that SEBI is watching out for the bad guys, it cannot protect investors from committing the same behavioural mistakes.
Read our entire coverage on Harshad Mehta here
(Anil Rego, Founder & CEO of Right Horizons)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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