Standard Chartered Bank IDR saw a bloodbath on Monday the 6th of June when trading began after the announcement from SEBI over the conversion rules which were announced on Friday the 3rd of June.
Trading volumes started reducing and the IDR has become a non-event after the initial explosive volume which happened on Monday, the first day of trade after the rules were announced.
During the week, I have spoken to various people from the investment community and found out what has happened which prompted such a move from the regulator. It appears SEBI was very keen to introduce a new platform like the GDR (Global Depository Receipts) traded in Luxembourg and ADR (American depository Receipts) traded in the US, in India. Accordingly the first ever IDR was launched in May 2010 with the Standard Chartered Bank PLC. It unfortunately remained the one and only IDR ever and despite of the best efforts of all concerned, no other issuer of capital was interested in coming out with an IDR issue.
It appears the launch of the IDR was without considering the effect that the conversion would do to the issue. If one looks at the trading pattern of GDR’s in Luxembourg whenever they have traded at a discount which makes arbitrage affordable, investors have bought GDR’s and converted the same to the underlying shares and sold at a profit. This would certainly have happened in the case of the Standard Chartered Bank issue as well. Anticipating this it appears SEBI issued instructions and said that the rules are being changed one week before the mandatory period of one year from listing was to be completed.
Investors of all categories are being debarred the right to make their legitimate money and this has been curtailed by one action from the regulator. I am not sure whether this action could be challenged in a court of law or whether SAT (Securities Tribunal Appellate) is the right forum to take up this issue.
|Date||Traded Qty||Delivery||Del %||Traded Qty||Delivery||Del %||Traded Qty||Delivery||Del %|
A table is enclosed showing the daily traded volumes on the two exchanged from Tuesday to Friday of this week. One can see the volumes are falling and the delivery percentage is fairly high with an overall delivery percentage of 61.34%. The volume has been reducing on a daily basis from 188 lacs on Tuesday to just a shade over 11 lacs on Friday.
I believe with the new guidelines for conversion into underlying shares only if the traded volume becomes insignificant or becomes infrequently traded is a sure way of ensuring that no future IDR’s ever happen. It is also a sure way of ensuring that the one and only IDR which is listed continue to remain listed.
The whole idea of writing about this issue is that the community needs to take up this issue. The regulation which has been enacted appears against the interest of the investing community and appears something which has been done with a retrospective effect.