project Report on Ketan Parekh Scam

8/7/2019 project Report on Ketan Parekh Scam

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MERIT CRITERIAMET

DISTINCTION CRITERIAMET

M1 Y D1 Y

M2 Y D2 Y

M3 Y D3

Plagiarism is a serious college offence.I certify this is my own work have referenced all relevant materials.TUTORS COMMENTS

OUTLINE ASSESSMENT CRITERIA

PASS

A pass grade is achieved by meeting all the requirements defined in the assessmentcriteria for the unit.

MERIT

In order to achieve a merit the students must:M1 Identify and apply strategies to find appropriate solutions.

M2 Select/design and apply appropriate methods/techniques.M3 Present and communicate appropriate findings.

In addition, students will also show your skills in selecting appropriate sources of financefrom a wide range and discussing in some detail the implications of making that selection.Illustrative figures will be used but may not be based in research carried out. Issues relatingto financial planning will be raised but may not be covered in detail, or may omit one of thefour key areas.

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DISTINCTION

In order to achieve a distinction the students must:D1 Use critical reflection to evaluate own work and justify valid conclusions.D2 Take responsibility for managing and organizing activities.D3 Demonstrate convergent, lateral and creative thinking.

In addition, to earn this grade the assignment must be meticulously planned and studentsmust be able to demonstrate an ability to anticipate and solve complex tasks in relation tothe case study. Students must demonstrate considerable research over and above classmaterials and synthesis information accurately.

Name of Verifier :

Internal Verification Date :

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Wigan & Leigh collage

Aurangabad.

Project Report

ON

Ketan Parekh Scam

Submitted to:- Guidance By:-

Col. Sanjib Nagh Mr. Sanjiv Hade

Submitted By:-

Sunil B. Chungade

PCL-1 Finance

(14109004)

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WLC Aurangabad Campus.

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Q.No.1Study the developments that led to the Ketan Parekh scam andcomment on SEBIs actions and role before and after the scam were

unearthed. The Ketan Parekh scam was an example of the inherentlyweak financial, regulatory and legal set up in India. Discuss the abovestatement, giving reasons to justify your stand?

Ketan Parekh is a Mumbai based share and stock broker. He is from a well to doshare-brokerage based family. He was involved in the shares scam of the year2000/01. The study by SEBI found that the flow of funds originating fromKetan, when paired with securities market transactions of connected clientsleads to the possibility that these trades were executed to confuse the funds

trail and to integrate the money originating from the banned stock broker intothe system of banking.

Ketan's possible involvement was found by SEBI during its investigationinto professed manipulative trading in the scripts of Cals Refineries Limited,Confidence Petroleum India Limited, Bang Overseas Limited, Shree PrecoatedSteels Limited and Temptation Foods Limited.Earlier, SEBI had Ketan and 17other entities from participating in the market following a study into purchasesale and dealing in the shares of companies like HFCL, Zee Telefilms, AdaniExports, Ranbaxy and Aftek Infosys between October 1999 and March 2001.In

its time order, SEBI banned 26 entities and persons, including Maruti SecuritiesLimited and asked them to reply in 15 day's time. The government had set upthe Joint Parliamentary Committee (JPC) to study the securities scam that hitthe stock market during the year 1999-2001.

According to SEBI, the starting point was routine market surveillancethat revealed set trades in five scripts. It also had information from the ITdepartment on Ketan Parekhs source of funds which trailed back to certainentities. SEBIs investigation showed that these entities built up large volumesin the five scripts chosen for investigation; strangely enough, they often madelosses on their transactions, but continued to trade. SEBI has opinion that these

independently incurred losses have a secondary motive that needs to beseparately investigated by the appropriate agency. It seems to have specificconcerns relating to money laundering to the enforcement and IT investigators.

SEBI also found that the connected entities or fronts used by Ketan forhis transactions often sold shares without having them in their possession. Theysubsequently obtained the shares in time for delivery through off-markettransactions through other connected entities within the circle of operators.

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Evidence of Ketan Parekhs massive market activities was his ability to pay backwell over Rs325 crore to the Gujarat-based Madhavpura Mercantile CooperativeBank (MCCB) which had collapsed and caused thousands of depositors to losemoney when he pump off Rs880 crore to fund his market misbehavior in theyear 1999-2000.

SEBIs team led by Mr. S.Raman (chief general manager) must becongratulated for breaking this seemingly impenetrable system; but let usrecognise that this is only the tip of the market manipulation. Ketan Parekh isnot the only manipulator to use this system; there are plenty of others doing ittoo. Also, the number of scrips in which Ketan has traded is substantially higherthan the five that were investigated by SEBI.One of the best kept secrets is theaction taken against those involved in the scam of 2000, which led to large-scale losses, the drop of two banks, Madhavpura Merc-antile Cooperative Bank(MMCB) and Global Trust Bank (GTB) and split the giant Unit Trust of India(UTI) into two, after pushing it to the brink of a collapse. Whether the BSE

directors had used their recourse to price sensitive information or not fortransactions in the market, having had direct access to the data was in directviolation of SEBI rules, observes Oommen A. Ninan. WHEN THE Sensex crossedthe dizzy 5000 mark in October 1999, Bombay Stock Exchange (BSE) brokersliterally took to the terrace of Jeejebhoy Towers and released balloons. Thecelebration also marked their ``bullish sentimentalism'' and showed lack ofmarket prudence - that what goes up has to come down; that the market isdriven by its own dynamics.

The built up position of Mr. Parekh in certain equities known as `K 10', in

the normal circumstances, would not have had any major impact on themarket. With the elected directors, including the BSE president, having hadrecourse to the price sensitive information relating to outstanding positions,purchases and sales by leading operators it is to be seen whether they haveused this advantage to depress the prices. The Securities and Exchange Boardof India (SEBI) investigation will reveal it in the next few days. The excitementindicated on Budget day by a sharp rise in the Sensex was rather on the highside. There is actually nothing much in the Budget to promote savings. On thecontrary, savings have been discouraged by a drop in interest rates.

It is now very doubtful whether demutualization or corporatisation of

broker-driven exchanges is the answer. The experience of some of the stockexchanges like the London Stock Exchange, the Australian Stock Exchange, theNasdaq, etc. is to be fully ascertained. Assuming that the brokers are keptaway from the management of stock exchanges, restarting their role only totheir trading rights, what is the guarantee that a new management will act inan objective manner.

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There has been a flow of money from banks to capital market in recentmonths. Private sector banks are prominent among them, including the GlobalTrust Bank (GTB). However, a reversal of banks' exposure to capital marketrecommended by the RBI-SEBI committee in September last year is not asolution. What is essential is that the banks should have expertise in judgingthe risk of the business as well as the organisational ability to administer such

schemes.

Moreover, the prima facie evidence in price rigging of GTB shares raisesdoubts over the regulators' surveillance mechanism. The RBI was aware ofsome unusual price movements in GTB share prices in November last year itselfand the SEBI took another three months to inform the RBI that it had foundevidence of price rigging in GTB share prices. The true measure of regulatorycompetence is the ability of the regulators to take quick corrective action.Further, the GTB's loan to Mr. Parekh without collateral is another issue thatraises questions on the RBI's role as a regulator. Regulation and supervisionand the quality of on and off-site supervision of the RBI and the SEBI should be

strengthened and they should be delinked from the Finance Ministry with moreautonomy and powers.

The regulator should continuously monitor the investment pattern so thatany undue change in a particular stream, like the broker position, could beidentified and immediate investigation conducted. The Government also shouldstrengthen the investment institutions to facilitate long-term investments. Flowof money to the capital market from the lending institutions should be moretransparent so that undue concentration of lending on particular scrip isavoided.

The financial crisis in Asia in 1997 has led to a fundamental re- thinkabout the way in which financial markets should be governed. While other Asiancountries are converging towards an international set of governance bestpractices, India is still lagging behind in terms of quality and speed ofimplementation. In a globalize economy, countries which fail to base thefinancial liberalization on strengthened economic policies and institutionalstructures are bound to suffer financial crisis.

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Q.No.2Comment on management of asset and liabilities and also risk, profitplanning for commercial banks including their working, with specificreference to the KP Scam?

Ketan Parekh was threatening to sue the Bank of India for defamation,because it complained about the bouncing of Rs 1.3-billion pay orders issued tothe broker by the Madhavpura Mercantile Cooperative Bank. He seemed tosuggest there is nothing more that the authorities would be able to pin againsthim.

At last investigations by the Central Bureau of Investigation and theSecurities and Exchange Board of India reveal that the sheer magnitude ofmoney moved around by Parekh or available to him for his market manipulationwas a staggering Rs 64 billion.

Money abroad

The CBI called a press conference to announce it had unearthed a Swissbank account in which Parekh was listed as the beneficiary. The Bureau claimedthere was $ 80 million (Rs 3.4 billion) in the account, which has since beenfrozen. In the past, CBI announcements were usually followed up with a quickarrest, this time it has gone silent.

New Overseas Corporate Bodies

The Securities and Exchange Board of India's preliminary investigation inMay revealed that Rs 29 billion was transferred out of the country through fiveOverseas Corporate Bodies between March 1999 to March 2001. These OCBshad together invested just Rs 7.77 billion in the Indian market but remitted awhopping Rs 36.77 billion out of the country. This direct flight of capitaloccurred through European Investments, Far East Investments, WakefieldHolding, Brentfield Holdings and Kensington Investment. Three of thesecompanies have a paid up capital of just $ 10.

SEBI says the pattern of investments and transactions through these

accounts shows a clear misuse of the OCB/Foreign Institutional Investor route.They seem to be used as a channel to repatriate profits earned through stockprice manipulation. Many of these OCBs were sub-accounts of Credit SuisseFirst Boston whose brokerage operations have been suspended. But there wereother FIIs too. Strangely, SEBI has not yet placed any restrictions on them sofar.

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All it has done is to request the Mauritius Offshore Business ActivitiesAuthority to give details in respect of actual beneficiaries, source and utilisationof funds of OCBs and sub-accounts mentioned in its preliminary report.

In answer to a Joint Parliamentary Committee query, Sebi now admits tohave unearthed six more OCBs, where there is evidence that Parekh's

companies may have used them for 'cornering and parking of stocks.' DossierStock Inc, Greenfield Investments Ltd, AOM Investments Ltd, SymphonyHoldings Ltd, Almel Investments (Mauritius) Ltd, and Delgrada Ltd.

However, since there was no other specific query about furtherrepatriation of funds, SEBI is silent about other flight of capital through the OCBwindow. However, it does admit there are clear inter-linkages between theOCBs and that some of them have issued participatory notes abroad to routefunds to India. It also says Parekh's entities have conducted many of theirtrading transactions.

In its preliminary investigation report, SEBI unearthed a transfer of nearlyRs 11 billion to Calcutta brokers, most of whom have had their businessessuspended because of payment defaults. In an answer to a JPC query, SEBInow says Parekh had sent over Rs 27 billion to Calcutta brokers betweenJanuary 2000 to March 2001. This suggests that as soon as the infotech,communication and entertainment stock-led boom began to lose momentum,Parekh shrewdly began to move his speculative activities to the unofficialmarket in Calcutta in order to avoid detection. SEBI says it is investigating thesource of these funds and how they were utilised.

Ketan Parekh's stock holding

The process of ferreting out information on his portfolio is slow andtedious because SEBI has to depend on 'third party sources' such as banks,depositories and stock exchanges and because 'Ketan Parekh is not co-operating with the investigation.' Yet, three of the companies identified by SEBIwhere he held over five per cent are Aftek Infosys, Shonkh Technologies andGlobal Trust Bank. According to SEBI, these companies had omitted to informstock exchanges about his holding having crossed five per cent. It is not quiteclear if the broker continues to hold these shares and what would be the valueof this holding.

If one were to simply add up the amounts mentioned in SEBI's variousreports, the size of Parekh's manipulations is far bigger than the Rs 50-oddbillion securities scam of 1992. Yet, unlike the previous scam, this one isabsurdly simple and brazen in its execution. Sebi says that Rs 27 billion wassent by Ketan to Calcutta brokers; Rs 29 billion vanished overseas, Rs 3.4billion ($ 80 million) was in a Swiss bank account; Rs 7 billion went to him from

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Himachal Futuristic; Rs 5.15 billion from the Zee Group and Rs 2.56 billiondirectly from the Global Trust Bank.

NEDUNGADI BANK:

After the Ketan Parekh bubble burst in 2001, the RBI suddenly swunginto action and began to go through Nedungadis books with a toothcomb.Punjab National Bank took over the bank that was up for sale after RBI initiatedthe move to weed out the broker promoter Rajendra Bhantia from the bank.

GLOBAL TRUST BANK:

Ramesh Gellis search for high returns took the new generation privatebank to the stock market, where its involvement in the speculative activitiesassociated with the Ketan Parekh scam and its high exposure soon resulted in

substantial losses. The banks promoters attempted to merge the entity withthe UTI Bank, and in the process the share price was rigged so that thepromoters could make a profit despite the mess in the the bank. It was clearthat unless some drastic measures were taken, the bank was heading forclosure. This led to the exit of Ramesh Gelli in 2001. Eventually, Oriental Bankof Commerce (OBC) took over the troubled bank.

CO-OP BANKS:

The saga of failed co-operative banks is continuing. The collapse of

Madhavpura Mercantile Co-operative Bank after Ketan Parekh used the bank tofund his stock market rigging was the high point. As per the RBI data, theaccumulated losses of cooperative banking sector has touched Rs 1598 crore an alarming rise of 241 per cent. The gross non-performing assets were Rs5053 crore enough to fund a world-class airport.

While the latest fraud may not be on the scale of the scams involvingHarshad Mehta (around Rs.5,000 crores) or Ketan Parekh (Rs.800 crores), whatis alarming is that this time the scammers' tentacles have spread to the PublicProvident Fund (PPF) - the repository of the savings of millions of ordinary

Indians. More than Rs.92 crores is missing from the Seamen's Provident Fund,which has 26,500 members. Worse still, the regulatory authorities admittedthat they were aware of the mess and gave various excuses for not havingtaken timely action.

Global Trust Bank

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Global Trust Bank was on the verge of getting merged with UTI Bank tobecome one formidable entity in the Indian banking sector, when the GreatCrash of March 2001 occurred, and along with stock prices, the marriage toocame unstuck. (GTB assets: Rs 7,531.22 crore, deposits: Rs 6,198.85 crore ason 31 March 2000.)

The report was believed to have noted that there was evidence thatParekh was involved in manipulating the stock prices of GTB prior to the mergerannouncement on 20 January 2001, and a swap ratio of 2.5 shares of UTI Bankfor 1 share of GTB, two days later.

State Bank of India

However, this time, SBIs losses are restricted to about Rs 40 crore, lentagainst pay orders issued by Ahmadabad based Classic Co-operative Bank.According to bank analysts polled by Capital Market, this is "loose change" forthe bank of its size.

Bank of India

The five banks hit by pay order defaults, Bank of India has unfortunatelybeen the worst hit. It cashed Rs 137-crore fictitious pay orders issued by theAhmadabad based Madhavpura Bank to arrested broker Ketan Parekh. Thebanking sector is estimated to have taken a hit of more than Rs 1,000 croredue to the pay order scam indulged in by many Gujarat co-operative banks. Itwas Bank of Indias complaint to Central Bureau of Investigation that resulted

in Parekhs arrest on 30 March 2001.

Bombay Stock Exchange

The Bombay Stock Exchange witnessed one of the worst bear runsleading to a 177-point crash on 2 March 2001. On 23 May, the BSE announcedthe launch of trading in index options in the first week of June, based on theEuropian style. For this purpose, the exchange has joined hands with theChicago Mercantile Exchange to adopt its system of calculating marginrequirements and managing risk, known as Standard Portfolio Analysis of Risk(SPAN).

Calcutta Stock Exchange

In fact the 177-point crash on 2 March 2001 was triggered by thepayment crisis at Lyons Range (CSE) and Dalal Street (BSE). While investorswere still trying to digest the shortfall of Rs 100 crore for the settlement ended

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Q.No.3What effect did this scam have on the stock markets? Carry out a riskreturn analysis of the portfolio held by KP. What would this portfolio belike in todays stock market if an individual investor had invested 100shares in the same companies and had kept it as an investment?

The effect of the Ketan Parekh scam on the stock markets:

The panic run on the bourses continued and the Bombay Stock Exchange(BSE) President Anand Rathi's (Rathi) resignation added to the downfall.Rathi had to resign.

By the end of March 2001, at least eight people were reported to havecommitted suicide.

Hundreds of investors were driven to the brink of bankruptcy. A change of Re. 1 in the price of a share when one speaks of a share rising

or falling by so many points. In stock market indices, however, a point isone unit of the composite weighted average on market capitalization ofrupee values.

A stock market index indicating weighted average of 30 scrips, also knownas the BSE Sensitive Index. The daily closing figure of this index broadlyreflects the performance of the capital markets.

It was alleged that Global Trust Bank exceeded its Capital market exposure. An investor who expects share prices to go up and hence buys them. But

during this period it was the reverse. People got panicked. Many took back there investments. it affected the fdis and the FIIs the Sensex lost over 700 points and more than 500 of the 1364 actively

traded shares touched 52-week lows. In the entire month of March 2001, atotal wealth of nearly Rs.1460000 million (approximately US$32 billion) waswiped out in market capitalization, more than Rs.45000 million a day.

The immediate fallout of market crash in Bombay was so widespread thatshock waves were also felt in Calcutta and other financial centers.

The payment crisis broke out in the Calcutta Stock Exchange (CSE) withnearly 100 brokers unable to meet payment obligations. Later, all broker-directors of the CSE governing board resigned.

Although Ketan Parekh came to public notice only in early 1999, hisoverarching influence on the financial markets could be gauged from the

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fact that his favorite stocks were known as KP Stocks and market playershad more faith in the KP Index rather than the Sensex.

Global, Himachal and DSQ Software will not fit in the universe of an

institutional investor, but for Parekh's presence. The country's largest mutualfund, UTI's Unit Scheme-64, had Himachal Futuristic (1.48 per cent of theportfolio), Ranbaxy (1.39 per cent), Pentafour (1.35 per cent) and

Global Tele-Systems (1.05 per cent) on September 30, 1999

companies

Adj closeon march2001

Recentprices

Dividend(million)

Expected return

HimachalFuturistic

45.85 10.75 0 -0.077%

adani 298.58 826.85 - -0.34%

ZeeTelefilms

- 259 860 3.32%

Ranbaxy 423.85 446.25 2239.42 5.44%

Silverline 110 5.94 - -

Pentamedia

Graphics

25.8 2.61 0 -0.3065%

SatyamComputer

5.38 110 - -

Aftekinfosys

57.35 57.75 46.80 0.810%

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Q.No.4KPV venture was formed for funding. Explain the legal procedures andaccounting procedures in this kind of mergers, for floating a newcompany?

FINANCIAL PROCEDURES

Purpose of this document

To define the financial systems used by An Organization and how theyrelate to all areas of the organization (sometimes referred to as FinancialStanding Orders).Relevant to managers and finance staff. All suggestions foramendments to Financial Controller. Minor amendments/updates to be agreedby Management Team; major amendments by Board of Trustees.

1. Ordering supplies and services

All staff needs to be aware that expenditure is committed when an order

is placed on behalf of AN ORGANISATION, not when the cheque is requested.Therefore, it is important that all orders are placed properly, and are withinagreed budgets and delegated powers.

Budget holders can place orders for goods or services within their budgetareas, subject only to cash-flow restraints. All orders of 1,000 or more mustbe authorized by the budget holder, except for specific areas of expenditurewhere written procedures have been agreed (e.g. book printing). Under 1,000,the budget holder may delegate all ordering as appropriate. Budget holders willdiscuss with the Financial Controller appropriate parameters, plus maximumallowed deviations before the budget holder or senior manager is brought in,

which will be documented.

Any lease, hire purchase agreement or other contract involvingexpenditure will be subject to the same authorization procedure as above, withthe appropriate expenditure amount being the total committed expenditureover the period of the contract, or where the contract is open-ended, over thefirst 12 months of the contract. Larger contracts should not be entered into

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without adequate advice from a relevant professional adviser (e.g. accountant,solicitor, and surveyor).

Orders of 1,000 or more must be placed in writing. Orders under 1,000but over 100 should be in writing where practical. Each Department will deviseappropriate ways of keeping records of such orders, which will be contained in

an Appendix. Suppliers must be requested to produce invoices. If payment isneeded on or before delivery or no credit is given, a 'pro-forma' should beprovided.

While claims for small items of expenditure may be made via petty cash (seesection 4), adequate supporting documentation, preferably receipts must beobtained. Large items requiring cash payment must be checked with Financebefore the arrangement is confirmed.

2. Payment authorization and Purchase Ledger

All invoices must be authorized for payment by the budget holder,although the actual checking of details may be delegated. The authorizingdepartment is responsible for checking invoices for accuracy in terms of figuresand conformity with the order placed, that the services or goods have beenreceived, and following up any problems. Finance must be informed if there arequeries delaying authorization or if payment is to be withheld for any reason.

A Purchase Ledger is operated by Finance. All incoming invoices are to bepassed to Finance section as soon as they arrive. Invoices will be recorded onto the Purchase Ledger within two days, unless there are coding problems.

They are then passed on to budget holders for authorization. Once authorizedas above, suppliers will be paid within the appropriate timescale. This isgenerally 14 days of invoice date for NICE PEOPLE, 30 days for others, unlessthere are exceptional cash-flow difficulties or specific supplier arrangements.The latter must be communicated by budget holders to Finance, who will informthem of any difficulties in meeting these.

Refunds of overpayments or cancellations of bookings/orders can be fullydelegated to the relevant activity manager or administrator (note that this doesnot include any 'compensation' or similar payment).

3. Cheque writing and signing

Signatories will only be drawn from senior staff and Trustees, and anynew signatory must be approved by the Trustees before the bank is notified. Allcheques for 100 or over require two signatories. Cheque signatories shouldcheck that the expenditure has been authorized by the appropriate personbefore signing the cheque. Salary payments require the signature of the

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Director, Company Secretary, Financial Controller or a member of the Board ofTrustees, plus one other.

Signatories will not sign cheques which are payable to themselves, orblank cheques. Cheques should be filled in completely (with payee, amount inwords and figures, and date) before cheques are signed. The only acceptable

exception is that the amount can be blank as long as the cheque is endorsed'Not more than ....'. Receipts for this type of expenditure must be returnedimmediately.

The day-to-day limit on encashment of cheques is 250. However, wherea larger cash float is required (for a major event for example), this may beapproved by the Financial Controller with the Director. When signing cheques torestore the imprest balance (see section 4), receipts accompanied by an add-list must be presented with the cheque request.

4. Handling of cash

Petty cash will be topped up on the 'imp rest' system, where the amountspent is reimbursed. It is intended for small items, up to 20. Anything overthis should be paid by cheque where possible. The imp rest has a balance limitof 250. The petty cash balance will be reconciled when re-storing the imp restbalance, or monthly if this is more frequent.

All cash collected from Finance will be signed for, and receipts will beissued for all cash returned. Specific extra cash floats (for tills at events etc.)should be arranged with the Financial Controller. The person signing for the

float is responsible for ensuring cash and receipts are returned as soon aspossible after the event etc. No further floats may be issued to that person, oranother person in the same department for a similar purpose, unless theprevious float has been accounted for.

Mixing money or receipts from different petty cash sources creates largeaccounting problems. In a real emergency, where another cash float has to beused for something, a clear record must be kept, and brought to FinanceSection's attention.

Any cash income will be banked via Finance, and not used for petty cash

expenditure. Such cash will be passed to Finance:

weekly for cash received in-house monthly for payphone Immediately after the end of an out-of-house event.

Cash will be kept in locked metal cabinets wherever possible. Appropriatearrangements will be made for till security.

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5. Salaries, payroll and freelancers

AN ORGANISATION is required to operate the PAYE system, and makeannual returns to the Inland Revenue. All people working directly for ANORGANISATION, whether permanent or temporary, must provide a P45, or signa P46 or student exemption certificate, or give reasons why they can't. All

payments will be made by cheque or direct bank credit.

It is the nature of AN Organizations activities that a large number offreelance consultants will be used. Freelance contractors will only be taken onwhen authorized in accordance with section 1 above. With a few exceptions,they will be treated as self-employed, and contracts with such people mustclearly indicate this. However, work in other areas of activity must be assumedto be employed by AN ORGANISATION and so subject to PAYE & NIC. Financewill obtain clarification of any unclear areas as needed.

Payments for additional work over and above standard hours must be

approved by the relevant Department Head. Clear written authorization mustbe given in adequate time for Finance to process it for the relevant payroll.These claims are financial records, and should be treated in the same way asany other.

Payment will usually be made via the NatWest Autopay service, direct toemployees' bank account. The salary payment listings will be checked by theFinancial Controller. Salaries will be paid on the 28th of the month, or nearestworking day, apart from in December, when it will be the 23rd.

Pay scales and new posts/re-structuring are approved by the Director,and are revised by March for implementation in April. The Board of Trustees willset the Director's remuneration. Appointments to existing posts are theresponsibility of the appropriate Department Head (or Director for seniorpositions).

Staff loans are not issued, but advances may be made against salary due, byarrangement with Finance.

The finance section is responsible for:

Paying each employee in accordance with the approved terms andconditions, and issuing pay slips.

Operating the PAYE system, keeping the required records, issuing P45sand P60s, and communicating with the tax office as appropriate.

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Making the correct deductions for Income Tax, NI, court orders and anyother appropriate deduction authorized by staff; ensuring that deductionsare paid to the correct body, and necessary returns made.

Administering the Statutory Sick Pay and Statutory Maternity Payschemes, alongside any additional related benefits provided by ANORGANISATION.

6. Income

The majority of income received by AN ORGANISATION is from sales ofservices and goods produced. With the exception of bookshop sales, invoiceswill be issued for every sale as soon as practical. For completeness of customerand sales information, this includes where payment is received with order.

All invoices should be raised on AN ORGANISATION letterhead, or in a formatagreed with the Financial Controller and auditors, and be drawn up inaccordance with AN Organizations standard invoice requirements. In particular

VAT invoices need to meet HM Customs and Excise requirements, and mustinclude the VAT registration number, VAT rate and VAT amount. All invoices willbe sequentially numbered, with each area of activity having its own prefixreference, agreed with Finance. Any accidental deviations from such sequencesmust be notified to Finance.

Invoice listings will be produced on a regular basis by the departmentsgenerating them. This is at least monthly, to fit in with the reporting system,although high volume activities are expected to be listed weekly. Outstandinginvoice payments will be followed up at least monthly by the relevant

department.

Information about non-routine and all grant income must be passed to Financewith the cheque or remittance advice. This will be filed by Finance for reference,and used to ensure such income is correctly recorded in the accounts and grantconditions etc. noted. Lack of documentation will lead to such items being 'heldon suspense'. It is the responsibility of the person gaining the grant to ensureall grant income is claimed as it becomes due or available, and that allappropriate staff and the Finance Section are aware of relevant grant conditionsand exactly how the grant is to be expended.

Post opening (and control of cheques and cash in) will be subject to randommanagement checks. The process will be written down, so that there is a clearstandard for those doing the work regularly, and others covering or checking.

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7. Bank accounts

AN Organizations bankers are:

National Westminster Bank plc, A Branch - Current, Business Reserve &Capital Reserve.

CAFCash high interest cheque account.

An automatic sweep arrangement between current and reserve accounts isoperated. These arrangements are subject to review, in the light of what ismost advantageous in terms of cost and service. All changes are to beauthorized by the Trustees.

All income will be paid into the current accounts as soon as possible, not lessthan once a week. The make up of each banking will be clearly recorded, for

later computer entry.

8. Books of account and records

Proper accounting records will be kept. The accounts systems are basedaround computer facilities, using Sage and Excel, but manual/paper records willalso be used if appropriate.

At a minimum, the following records will be kept:

Appropriate control accounts (i.e. bank control, petty cash control, VATcontrol).

Salary control account. Monthly trial balances.

Petty cash and bank accounts will be reconciled at least monthly, and VATreturns produced on the required quarterly cycle.

All vouchers entered into the computer system will be clearly initialed bythe person entering it, along with date and accounts reference. Allincome/expenditure information will be recorded within three days. All

corrections and adjustments will be clearly noted in written Journal givingreasons for them, with supporting documentation where available.

Purchase Ledger, other cheque payments and banking sheets will be filedin the appropriate reference order, with any supporting documentation. Allpetty cash vouchers, cheque stubs etc. will be retained for audit and forstatutory purposes thereafter.

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All fixed assets costing more than 250 (or such other level as may fromtime to time be agreed by the trustees) will be capitalized in the accounts andrecorded in a fixed assets register. This register will record details of date ofpurchase, supplier, cost, serial no. where applicable, description and in duecourse details of disposal.

9. Budget setting

12 monthly income and expenditure budgets will be prepared in time forfinal approval by the Board of Trustees in December, before the start of thefinancial year under consideration.

Department budgets are prepared by the Head of Department, working with theFinancial Controller. Central management budgets are prepared by the FinancialController in consultation with the Director. The Management Team will play alead role in ensuring that budgets are set fairly, efficiently and in time.Approval of the budgets is by recommendation of the Management Team to the

Board of Trustees.

The approved budget will be used as a base to construct a cash-flow forecastfor the year, which will be updated quarterly.

10. Financial monitoring and audit

All budget holders will receive appropriate, regular reports of income and

expenditure against budget.

The Management Team will receive:

Weekly snapshots of cash in hand, total creditors and total debtors. Weekly graph of cash in hand. Monthly reports of income and expenditure versus budget - within two

weeks of month end.

Detailed monthly payroll reports will be produced. Detailed cash-flow reportswill be produced as appropriate.

AN Organizations financial year is from 1st January to 31st December. Annualaccounts will be submitted for audit, as required under the Companies Act,charity regulations and grant conditions, prepared per SORP for Charities andany other relevant accounting conventions. Final draft should be ready for andpassed by Board of Trustees in March, with audited accounts signed at the Junemeeting.

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11. Role of Treasurer

The Treasurer works in close co-operation with, and provides support andadvice to, the Financial Controller. Specific responsibilities are to:

Guide and advise the Board in the approval of budgets, accounts and

financial statements, within a relevant policy framework. Keep the Board informed about its financial duties and responsibilities. Advice the Board on the financial implications of An Organizations

strategic plans and key assumptions included in management'soperational plan and annual budget.

Confirm that the financial resources of An Organisation meet present andfuture needs.

Understand the accounting procedures and key internal controls, so as tobe able assure the Board of An Organizations financial integrity.

Ensure that the accounts are properly audited, that acceptedrecommendations of the auditors are implemented, and meet the auditor

at least once a year. Formally present the accounts at the AGM, drawing attention to important

points. Monitor An Organizations investment activity and ensure its consistency

with policies, aims, objectives and legal responsibilities

12. Role of Management

The Management team consists of Heads of This That and the Other,Financial Controller, plus the Director. Each has responsibility for their

individual department's financial performance and ensuring that the departmentcomplies with Financial Procedures. They will receive weekly snapshots andmonthly management accounts, keeping adequate records to be in controlbetween monthly reports. The Team will review finances thoroughly at itsmonthly meetings.

13. Role of Board of Trustees

The committee is responsible for:

Approving the budget for the year. Approving signatories to the bank accounts. Appointments of staff where not delegated to the Director. Receiving reports from the Management Team on areas of concern. Approving exceptional items of expenditure. Monitoring the financial position based on monthly reports, with advice

from the Director. Approving the annual accounts, auditors report and appointment.

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14. Role of Financial Controller

The Financial Controller is the lead person for processing all changes andexceptional items, and will assist the Treasurer in any financial matterconnected with the organization.

The Financial Controller will ensure that adequate security precautions aretaken to safeguard financial and other assets.

Q.No.5Analyze the Indian scenario of FIIs since then and its effect on Indiaas an investment destination for FIIs. Please explain with relevantfigures.

FOREIGN INSTITUTIONAL INVESTORS (FII)

Institutional Investor is any investor or investment fund that is from orregistered in a country outside of the one in which it is currently investing.Institutional investors include hedge funds, insurance companies, pension fundsand mutual funds. The growing Indian market had attracted the foreigninvestors, which are called Foreign Institutional Investors (FII) to Indian equitymarket, and this study present try to explain the impact and extent of foreigninstitutional investors in Indian stock market and examining whether market

movement can be explained by these investors. It is often hear that wheneverthere is a rise in market, it is explained that it is due to foreign investors'money and a decline in market is termed as withdrawal of money from FIIs.This study tries to examine the

Influence of FII on movement of Indian stock exchange during the postliberalization period that is 1991 to 2007.

Foreign investment refers to investments made by the residents of a country inthe financial assets and production processes of another country. The effect offoreign investment, however, varies from country to country. It can affect the

factor productivity of the recipient country and can also affect the balance ofpayments. Foreign investment provides a channel through which countries cangain access to foreign capital. It can come in two forms: foreign directinvestment (FDI) and foreign institutional investment (FII). Foreign directinvestment involves in direct production activities and is also of a medium- tolong-term nature. But foreign institutional investment is a short-terminvestment, mostly in the financial markets. FII, given its short-term nature,can have bidirectional causation with the returns of other domestic financial

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markets such as money markets, stock markets, and foreign exchangemarkets. Hence, understanding the determinants of FII is very important forany emerging economy as FII exerts a larger impact on the domestic financialmarkets in the short run and a real impact in the long run. India, being acapital scarce country, has taken many measures to attract foreign investmentsince the beginning of reforms in 1991.

India is the second largest country in the world, with a population of over 1billion people. As a developing country, until recently, however, India hasattracted only a small share of global Foreign Direct Investment (FDI) andforeign institutional investment (FII) primarily due to government restrictionson foreign involvement in the economy. But beginning in 1991 and acceleratingrapidly since 2000, India has liberalized its investment regulations and activelyencouraged new foreign investment, a sharp reversal from decades ofdiscouraging economic integration with the global economy. ForeignInstitutional Investment (FII) is defined as an investment that is made toacquire a lasting interest in an enterprise operating in an economy other than

that of investor.

The policy framework for permitting FII investment was providedunder the Government of India guidelines vide Press Note dateSeptember 14, 1992. The guidelines formulated in this Regard were asfollows:

1) Foreign Institutional Investors (FIIs) including institutions such as PensionFunds, MutualFunds, Investment Trusts, Asset Management Companies, Nominee Companies

andIncorporated/Institutional Portfolio Managers or their power of attorney holders(providing discretionary and non-discretionary portfolio management services)would be welcome to make investments under these guidelines.

2) FIIs would be welcome to invest in all the securities traded on the Primaryand Secondary markets, including the equity and other securities/instrumentsof companies which are listed/to be listed on the Stock Exchanges in Indiaincluding the OTC Exchange of India. These would include shares, debentures,warrants, and the schemes floated by domestic Mutual Funds. Governmentwould even like to add further categories of securities later from time to time.

3) FIIs would be required to obtain an initial registration with Securities andExchange Board of India (SEBI), the nodal regulatory agency for securitiesmarkets, before any investment is made by them in the Securities of companieslisted on the Stock Exchanges in India, in accordance with these guidelines.Nominee companies, affiliates and subsidiary companies of a FII would betreated as separate FIIs for registration, and may seek separate registrationwith SEBI.

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4) Since there were foreign exchange controls in force, for various permissionsunder exchange control, along with their application for initial registration, FIIswere also supposed to file with SEBI another application addressed to RBI forseeking various permissions under FERA, in a format that would be specified byRBI for the purpose. RBI's general permission would be obtained by SEBI

before granting initial registration and RBI's FERA permission together by SEBI,under a single window approach.

5) For granting registration to the FII, SEBI should take into account the trackrecord of the FII, its professional competence, financial soundness, experienceand such other criteria that may be considered by SEBI to be relevant. Besides,FII seeking initial registration with SEBI were be required to hold a registrationfrom the Securities Commission, or the regulatory organization for the stockmarket in the country of domicile/incorporation of the FII.

6) SEBI's initial registration would be valid for five years. RBI's general

permission under FERA to the FII would also hold good for five years. Bothwould be renewable for similar five year periods later on.

7) RBI's general permission under FERA would enable the registered FII to buy,sell and realize capital gains on investments made through initial corpusremitted to India, subscribe/renounce rights offerings of shares, invest on allrecognized stock exchanges through a designated bank branch, and to appointa domestic Custodian for custody of investments held.

8) This General Permission from RBI would also enable the FII to:

a. Open foreign currency denominated accounts in a designated bank. (Therecould even be more than one account in the same bank branch each designatedin different foreign currencies, if it is so required by FII for its operationalpurposes);b. Open a special non-resident rupee account to which could be credited allreceipts from the capital inflows, sale proceeds of shares, dividends andinterests;c. Transfer sums from the foreign currency accounts to the rupee account andvice versa, at the market rate of exchange;d. Make investments in the securities in India out of the balances in the rupeeaccount;e. Transfer repairable (after tax) proceeds from the rupee account to theforeign currency account(s);f. Repatriate the capital, capital gains, dividends, incomes received by way ofinterest, etc.and any compensation received towards sale/renouncement ofrights offerings of shares subject to the designated branch of a bank/thecustodian being authorized to deduct withholding tax on capital gains andarranging to pay such tax and remitting the net proceeds at market rates ofexchange;

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g. Register FII's holdings without any further clearance under FERA.

9) There would be no restriction on the volume of investment minimum ormaximum-for the purpose of entry of FIIs, in the primary/secondary market.Also, there would be no lock-in period prescribed for the purposes of suchinvestments made by FIIs. It was expected that the differential in the rates of

taxation of the long term capital gains and short term capital gains wouldautomatically induce the FIIs to retain their investments as long terminvestments.

10) Portfolio investments in primary or secondary markets were subject to aceiling of 30% of issued share capital for the total holdings of all registeredFIIs, in any one company. The ceiling was made applicable to all holdingstaking into account the conversions out of the fully and partly convertibledebentures issued by the company. The holding of a single FII in any companywould also be subject to a ceiling of 10% of total issued capital. For thispurpose, the holdings of an FII group would be counted as holdings of a single

FII.

11) The maximum holdings of 24% for all non-resident portfolio investments,including those of the registered FIIs, were to include NRI corporate and non-corporate investments, but did not include the following:a. Foreign investments under financial collaborations (direct foreigninvestments), which are permitted up to 51% in all priority areas.b. Investments by FIIs through the following alternative routes:i. Offshore single/regional funds;ii. Global Depository Receipts;

iii. Euro convertibles.

12) Disinvestment would be allowed only through stock exchange in India,including the OTC Exchange. In exceptional cases, SEBI may permit sales otherthan through stock exchanges, provided the sale price is not significantlydifferent from the stock market quotations, where available.

These guidelines were suitably incorporated under the SEBI (FIIs) Regulations,1995. These regulations continue to maintain the link with the governmentguidelines through an inserted clause that the investment by FIIs should alsobe subject to Government guidelines. This linkage has allowed the Governmentto indicate various investment limits including in specific sectors.

These features of the market have a number of implications. To startwith, Foreign Institutional Investors (FIIs), whose exposure in Indian markets isan extremely small share of their international portfolio, making India almostirrelevant to their international strategies, have an undue influence on theperformance of the markets. The sums they invest or withdraw can movemarkets in the upward and downward direction, as recent experience has amply

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demonstrated. This forces governments that are keen to have them constantlymaking net purchases and driving markets upwards to bend over backwards inappeasing them. A corollary of this influence of the FIIs is that any marketplayer who is able to mobilize a significant sum of capital and is willing to risk itin investments in the market can be a major influence on market performance.This explains the importance of operators like Harshad Mehta and Ketan

Parekh, the Big Bulls of the 1990s, who rose from being small traders tobecome correlates and were lionized for their resource mobilization and risk-taking abilities, which made them movers of markets. Ketan Parekh is reportedto have risked his investments on a few sectors (the so-called technologystocks) and few firms, and till the recent debacle always seemed to come outright in terms of his judgment. He had, it now appears, a major role to play inrigging share prices, as he allegedly did in the case of Global Trust Bank (GTB)shares prior to the aborted merger of UTI Bank and GTB.

. Consolidated Summary of FII Investment Trends

GrossPurchasesRs. Cr

GrossSales Rs.Cr

NetInvestmentRs. Cr

NetInvestmentUS$ m atmonthly exrate

CumulativeNetInvestmentUS$ m atmonthly exrate

GT for 1993 2,661.9 66.8 2,595.1 827.2 827.2

GT for 1994 9,267.2 2,476.1 6,791.2 2,164.8 2,991.9

GT for 1995 6,665.9 2,812.2 3,853.8 1,191.4 4,183.4

GT for 1996 15,739.2 4,935.6 10,803.6 3,058.2 7,241.6GT for 1997 18,926.5 12,719.2 6,207.3 1,746.7 8,988.2

GT for 1998 13,899.8 15,379.7 (1,479.9) (338.0) 8,650.0

GT for 1999 37,211.5 30,514.7 6,696.8 1,559.9 10,209.9

J2000 6,129.7 5,933.2 196.6 45.1 10,255.0

F2000 9,761.6 6,677.5 3,084.1 707.2 10,962.2

M2000 9,890.1 8,691.2 1,198.8 275.0 11,237.3

A2000 8,354.5 5,767.8 2,586.7 593.4 11,830.7

M2000 6,307.4 6,054.7 252.7 57.5 11,887.5

J2000 5,398.8 6,333.6 (934.8) (212.6) 11,674.9J2000 5,857.6 7,259.4 (1,401.8) (313.7) 11,361.2

A2000 5,134.0 3,875.2 1,258.9 281.1 11,642.4

S2000 7,149.6 6,931.3 218.3 47.8 11,690.1

O2000 4,440.7 4,659.3 (218.5) (47.6) 11,642.5

N2000 4,791.1 3,885.7 905.4 195.3 11,837.8

D2000 4,451.5 5,086.6 (635.1) (135.8) 11,702.1

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GT for 2000 77,666.6 71,155.4 6,511.2 1,492.2 11,702.1

J2001 8,601.0 4,327.7 4,273.3 914.1 12,616.2

F2001 6,586.4 4,722.7 1,863.8 400.4 13,016.6

M2001 6,978.0 5,212.4 1,765.6 379.5 13,396.1

A2001 5,079.9 3,101.1 1,978.8 424.5 13,820.6

M2001 3,976.0 3,300.0 676.1 144.5 13,965.1J2001 4,118.9 2,939.2 1,179.7 251.4 14,216.5

J2001 3,665.0 3,187.3 477.7 101.6 14,318.1

A2001 3,248.5 2,746.3 502.3 106.5 14,424.7

S 2001 3370.1 3903.4 (533.4) (113.2) 14,311.5

O 2001 3,895.7 3,011.3 884.4 185.6 14,491.7

N2001 3,974.2 3,970.5 3.8 0.8 14,497.9

Grand Totalfor 2001

53,343.8 40,279.0 13,064.8 2,795.8 .

Grand Totaltill 28/11 235,382.4 180,338.7 55,043.8

Investment by FIIs has seen a steady growth since the opening of theequity markets in September 1992. The share of FIIs in total FPI has increasedfrom 47% in 1993-94 to around 74% in 2001-2002. FIIs have also acquired asignificant presence in the Indian stock market. The share of their trading intotal turnover attained a high of almost 30% in October 2001. In total marketcapitalization FIIs account for about 13% and they make about 50-60% ofaverage daily deliveries on the stock market.

Documents

project Report on Ketan Parekh Scam