Bombay market hit by insider trading claims
On February 28, Indian finance minister Yashwant Sinha announced an annual budget that should have given a strong push to economic growth. Tax cuts, a sharp cut in interest rates and a raising of the ceiling on foreign portfolio investment in Indian companies should have given the stock markets the boost they badly needed.
The markets cheered, rising 5% in two days. On March 2, though, the Bombay Stock Exchange 30-share Sensex index dropped like a stone, losing 4% in a single day. The events that followed spawned a huge crisis on the stock markets, rocking the foundations of the 125-year-old BSE, India's second-biggest stock market, forcing defaults on, among others, the Calcutta Stock Exchange, the third-largest bourse, and threatening to spill over to India's banking system.
It began when Anand Rathi, the BSE's president, was charged with insider trading. Rathi had allegedly sought information on some traders' open positions from the exchange's surveillance division on the day the market fell. He allegedly passed on that information to others who sold heavily, imposing severe losses on those traders. The Securities Exchange Board of India (Sebi), the market regulator, suspended all the BSE's broker directors, began an inquiry into 14 brokerage firms and barred Rathi's firms from trading.