On Monday morning, BSE Ltd updated its website and the trading terminals of its members with an announcement that it had received from Bodal Chemicals Ltd on Saturday night stating that the company has sold one of its plants for Rs 640 crore and that the firm would consider a bonus issue at its next board meeting.
The company’s market capitalization at that time was merely around Rs 200 crore, and as the press release itself stated, the plant was set up at a cost of only Rs 31 crore. There were more signs that the announcement was a fake. It talked about the bonus issue unlocking the value of the company’s shares and its high capability of value creation for its stakeholders. It talked of a non-existent Crisil GVC Level 3 rating of the firm’s corporate governance and value-creation practices.
Another giveaway was the fact that the statement was faxed to only one exchange (although the company is now also listed on the National Stock Exchange, or NSE).
Perhaps the biggest clue was the fact that the statement was faxed from Radheshyam Stationery in Ahmedabad, and not from the company’s registered office.
It wasn’t until 2.20pm that Bodal Chemicals sent a clarification to both the exchanges that the earlier announcement was a fake. By then, the company’s shares had given up the gains of over 10% in early trading on Monday. Investors seemed to have figured out that the announcement of the plant sale was a forged one.
Besides, volumes on Monday were on a par with the daily average in the rest of the month.
Cumulative volume on BSE and NSE stood at Rs 2 crore. Even if the entire volume on the two exchanges came from the entity/entities that had spread the false rumour, the gains couldn’t have been more than Rs 20 lakh. (Actually the gains would be much lower, as the weighted average price of all trades on Monday was on a par with the closing price last Friday. The stock rose 10% only in the early hours of trading.)
But even while the crime doesn’t look big in terms of monetary gain, it does highlight the lacunae in the current system of corporate filings and how these can be misused.
Updating filings by companies is currently a manual process at exchanges and must be automated soon to get rid of this problem. Securities and Exchange Board of India (Sebi) is in the process of setting up a unified platform for electronic reporting and dissemination. The plan is to have Web-based reporting in the eXtensible Business Reporting Language (XBRL) format, which is especially useful for financial reporting, since the data will be in such form that it can be analysed. But the reporting format will also solve the problem of forged announcements and manual errors at the exchange’s end, since the system will check for digital signatures from the authorized personnel.
While all this sounds good, it’s important that Sebi starts moving on this soon and effectively to avoid a repeat of its failure with the XBRL reporting system in 2008.
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