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Securities Scam Analysis

In: Business and Management

Submitted By Amiyaa
Words 2565
Pages 11
An Analysis of the Securities Scam
-Highlighting Harshad Mehta

Securities Scam, as it is called, is a name given to the diversion of funds from the banking system to a set of individual stockbrokers through a series of transactions. The duration of the scam was around 11 months, from May 1991 to April 1992. The report primarily describes: * The basic difference between capital market and money market * Why was their room for the scam to happen * How the scam got originated * Who were the key players * What system flaws turned a plan to a scam * How the plan got exposed * Response of the government * Impact of the scam * Policies required
Starting with the basic explanation of capital markets and money markets, let us try to understand the points of difference between the two. Point of Difference | Securities Market | Stock Market | Key Players | * Banks * Financial institutions | * Individuals * Companies | Intermediaries | Around a dozen brokers approved by the Reserve bank of India | About 500 brokers approved by Bombay Stock Exchange | Capitalization | Rs 100000 crores | Rs 250000 crores | Finance | Formal money market | Informal money market (Badla market) | Cost of Finance | 18-20% | 35-40% | Number of Transactions | 250 per day | 50000 per day | Trading Volume | Rs 3000-4000 Crores per day | Rs 50-200 Crores per day |
We can observe from the table that there is a great difference between the two entities in terms of trading volume and cost of finance.
The difference in the percentage amounts attributes to the level of risk associated with each market. Securities market is usually considered more safe since they include less number of brokers associated with them, but since the ‘informal money market’ is made available to the stock broker for a very short span of time,...

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