When a company conducts a board meeting or discusses its quarterly results…it is necessary to tell the stock exchanges and the regulator what was the outcome of the meeting. Normally companies make minutes of the meeting and fax it to the stock exchanges.

Now if you are a small company and many results have been announced there is a good chance that your results will get lost or delayed. What does an investor expect from the regulators or the exchange when he is buying direct equity shares?

1. Proper Timely information: as soon as a decision is arrived at (including decision to hold the Board Meeting for considering something) the information should be given IMMEDIATELY to all the constituents SIMULTANEOUSLY. Thus a guy holding 100 shares or an institution holding 1,000,000 shares BOTH should get the information concurrently.

2. Data should be accurate (authentic): Nobody should hide under excuses like ‘printing mistake’, ‘forgot to fax’ , or ‘totalling mistake’ and such clerical excuses.

3. Source should be authentic: Yes it should have been filed by the company – and a designated person should have sent it, after authenticating it by the CFO / Company secretary / Managing Director – so that nobody says ‘oh this was a mistake’ we did not send it!

4. It should be authenticated by the auditor: if you have your money working, it is worth auditing too na?

XBRL can ensure all this and more. It can ensure arithmetical accuracy (makes it easier for the auditor and speeds up his work).

Of course some basic intelligence and due diligence work may be necessary…but the regulator and the exchanges will be saved off a lot of embarassment. They could have avoided the ones like the Bodal episode…(did you say Bodal who?)..then read on..

http://www.livemint.com/2011/08/31214243/Bodal-episode-should-spur-Sebi.html

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The Stock Exchange, Mumbai, was  started as an association – non profit making company – and was supposed to be for the benefit of all its members who helped trade, shareholders of companies to get a two-way quotation, and as a body to make the rules and regulations. This was a 100 year plus institution where words like ‘profit’ and quarterly results and corporate governance were not heard of. However it functioned for a very long time like a club where a few people made the rules and words like democracy were alien. There was a guy famously called the ‘kala nag’ who could bring any company to its knees by going short on the companies shares. One prominent industrialist (who is no more) ended his regime by seeking delivery of shares – which of course he did not have. Settlements were regularly clubbed and the “president” of the exchange made the rules. Rules could be made, broken, re-made and the smaller brokers could get killed in the process. A few prominent communities decided that the ‘President’ would change by an annual rotation!!

Sebi came in 1992 – effectively in 1994- and made some rules. The babudom got offended by the high handedness of the BSE ‘dons’ and the babus created NSE. Nse was a ‘professionally’ run exchange where the brokers had very little say in the management. Of course professionals could be ‘managed’ like the BSE, but the process was more difficult for the not very educated broker to handle the whole process. However enough money was spent on keeping the NSE alive and kicking and soon it spread allover the country – and today it is a successful organisation, originally promoted by IDBI. Now Nse has shareholders who are exerting pressure on the exchange to increase its income. Private Equity holders need a higher revenue, and a higher growth trajectory so that they can get out of the deal. So pushing NSE to increase trading hours (there is no shortage of people who will increase their trading) to increase revenues is a sensible option – and so it is happening. To say this has anything to do with ‘integration with international marets’ is a joke.

Do the brokers have a choice? Unless you know all your clients (which means HNI and institutional clients only) you may choose to open at 10am instead of 9am. However if you are a retail broker, you do not have that choice. One great customer who wants to buy 100 shares of H K Finechem @ market price places an order at 9am with your dealer / voicemail.

Let us say the beginning price (9 am) was Rs. 12, and your dealer executed the order at say 9.55 am at Rs. 14 this client could either accept it or go to SEBI / consumer court and claim ‘deficiency of service’.

Welcome to the world of financial services.

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Look at how childish both the exchanges are in their behaviour. BSE (the real name is The Stock Exchange, Mumbai) wanted to change the timing by a pifling 10 minutes, but the NSE decided to be one up – and said we will start trading at 9 am.

To me this is as funny as a mutual fund saying ‘This year we will sell equity funds’ – it is not about what they want, it is what the investor will buy.

In case of BSE and NSE – clear case of a stupid monopoly by a quasi government body – both of them did not bother what the end customer (for both the exchanges it is their immediate members) wanted. If the brokers decide to stay away from the exchanges from 9 am to 10 am, what will the exchanges do? Pray tell me ‘top management’ ? A few brokers may start early, there may be a few stray trades, but it will not be easy. If the software lock had a time lock of 9.55am, that will have to be changed. People will have to start early and gear up to longer working hours. Thankfully both the exchanges run their own clearing house – will they change the timing. I am sure they have no clue about how they are going to react. High time the newer stocke exchanges are allowed to start. MCX / Financial Technologies and Reliance ADAG are waiting to launch their exchanges (surely Rajnikant Patel is watching from the sidelines.

A very quick dipstick survey (fully biased -all gujju brokers who love to sleep late) got the same result – ‘I will continue to start at 10 am’ kind of an attitude. Even their customers who trade normally come into their offices by 10.30 – waiting for the volumes to develop. Will anything change here? Yes employees will have to come in early, leave at the same time or later – increased workload. The telivison channels will have to worry less about program will have to work less (search less for ‘what to do’), chai wallah near broker’s offices will sell more chai…

Incidentally volumes may go up….

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Once upon a time there used to be a ‘ring’ in The Stock Exchange (you dummy it had to be just called this, because the other ones did not exist). The Stock Exchange, Mumbai became the BSE – the Bombay Stock Exchange. The people with the ‘sauda’ book went into the ring and executed the transactions. Quotes were given by jobbers (called taravaniwalas). The daily turnover used to be around Rs. 200 crores – anything higher was considered great. There were 100,000 graduates / undergraduates who worked as jobbers, clerks going into the ring, sub-brokers, share transfer clerks, etc.

Then came technology – and the peopl who brought it said ‘now there is tranparency’ – after all the tech people, ‘educated’ people, etc. had to create new terminology. So out went badla, and in came F&O….and many such changes. Jobs changed hands. Frankly do not know whether the benefits went to the investor or the people who created a big army of financial service sector jobs. It would be intersting to see the ‘wealth created’, the ‘salary paid’ , the turnover tax paid…velocity benefits everybody except the investor (assuming he is still alive!).

Then came the mutual fund industry – ‘wealth management’ they said it was. Again distribution was required, professionals were required – so ‘charges’ were imposed. Some people made an attempt to understand the charges – the super big guys understood and negotiated it. The smaller guys do not understand the charges though there are some who pretend that they do. The amount of expenses that an amc can charge is decided by the amount of money that they can charge as expenses and its own fees. These were fixed when the aum of the biggest amc was under Rs. 1000 crores. Now it is Rs. 100,000 crores. Mr. C B Bhave has an advisory committee which is supposed to benefit the end investor. I have not seen any MD of any company of any industry say “Regulator please reduce my charges so that the end customer can benefit”. Well bureaucrats have some simple illussions in life, do they not.

For a customer who invests Rs. 100,000 a year for 30 years the load that he pays would be Rs. 2000 * 30 = Rs. 60,000. However even if the fund puts in a mediocre performance, the amc charges he pays would be Rs. 250,000 in THE THIRTIETH YEAR ALONE!

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This shocking revelation came as the result of an exercise at IRIS to develop India’s first XBRL database of listed companies. The exercise included a study of the financials of the past 5 years of more than 1,400 listed Indian companies. The study, which is being carried out in phases, has so far covered only companies in manufacturing and services. Banks and financial services companies will be covered in the next round. The project used the taxonomy approved by the Institute of Chartered Accountants of India.

According to the findings, of the 209 companies identified with discrepancies,

60% of the companies are listed on both the NSE and BSE, 1% on the NSE alone and the rest on the BSE alone.
In terms of sectoral dispersion, textiles with 27 companies accounted for the most, followed by IT (18), Steel (10) and Pharmaceuticals (9).

In terms of geographical dispersion, Maharashtra with 60 companies accounted for the most, followed by Delhi at a distant second with 29 companies. Tamil Nadu (22), Andhra (22) and Gujarat (19) followed.
109 companies had errors in the balance sheet, 66 in their cash flow statements while 34 had errors creeping into their Profit & Loss Statements.

XBRL, or eXtensible Business Reporting Language, is often described as the barcode of information and has been acknowledged as the harbinger of transparency in financial reporting worldwide. More than 100 countries have adopted XBRL, this includes India. RBI, SEBI and the two stock exchanges (BSE and NSE) are championing the adoption of XBRL in India, with the ICAI providing leadership. As a first step towards full fledged adoption of XBRL in India, the Institute of Chartered Accountants of India has recently approved the taxonomy for manufacturing and services companies.

All Indian companies with ADRs outstanding have to file with the Securities Exchange Commission of the USA in XBRL starting next year. Infosys has been part of the voluntary compliance program of the SEC for the last 3 years and Mohandas Pai is a recent addition to the board of XBRL International.

On discovering any kind of misreporting, all eyes generally turn to the auditors, especially after the Satyam fiasco. But I feel it would be unfair to simply blame the auditors, as it is also the responsibility of company managements to get it right.

I would say that both the companies and auditors should have paid more attention. But while I agree that there could be the odd case where some companies may have fudged their accounts deliberately, I would not pin the fraud label on all of them.

The very fact that there are discrepancies is a serious enough matter warranting further examination to prevent such occurrences in the future. IRIS will pass on the findings of the study to the Ministry of Corporate Affairs, SEBI, and the stock exchanges.

With XBRL, companies will have good quality of data in their reporting if they are able to implement XBRL within the organization effectively.

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Dealings are done over phone, and confirmed by fax, email, etc. It is a virtual market (on the net). All the Indian stock exchanges (Bse, nse, otcei) have a separate debt market segment. Debt markets deal with Government securities market and Bond markets.

Sadly in this market the only issuer is the government of India. The government has a vested interest in keeping the interest rates low, and we cannot do anything about it!

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Reminiscences of a Stock Operator (Wiley Investment Classics)
by Edwin Lefèvre

Once upon a time, quite long ago – the US was a highly unregulated market.

Very briefly, Jesse Livermore’s life as a stock and commodities trader is portrayed in the book through the character of Larry Livingston.

It is a story well told – and is surely gripping. It is racy and you will be able to read it in a short time. Readers who have been in the Indian equity markets since the 1970s should be able to identify with some of the happenings in the book. A note of caution though – this book is only meant for the persons who understand how brokerage houses work – concepts like churn and price rigging are clearly broking concepts!

It is also important to remember that Jesse’s life had many upheavals – and he died by committing suicide.

Jesse Livermore was supposed to have been responsible for the market crash of 1929, the tsunami of all market crashes. A clear indicator perhaps that not too many fortunes have been made by trading. Livingston started out life at the age of 14 as a quotation board boy (those of you who went into the ring at the BSE would surely remember the “kaka” who would write the quotations on the black board – just outside the “ring”). Here he developed an uncanny knack of predicting the patterns – just a good feel for numbers. Surely as a trader (even as an Investor perhaps) having a feel for numbers is necessary.

A friend wants him to play on “Burlington” – he quickly amasses $ 1000 – and his mother wants him to “save up” because no boy so young could have made so much money. But a trader is always a trader so all the money constantly becomes margin and Livingstone goes through many ups and downs in life. Traders have this peculiar trait of playing – it is not about money – it seems like a game – its about winning. And like Yudhishtra of Mahabarat they cannot ever seem to walk away with a small loss or a small profit.

You will also see some absolutely foolish ideas being touted to Larry and even as a small boy he realized the foolishness of the idea. In page 45 you find mention of one such idea – making a client buy a share and immediately close the deal. Sure, clients like action, but at least at the year end the client sees his P&L account and knows he has been had!

He tells us about being invited to New York by Williamson & Brown. Their biggest client is Alvin Marquand who is rich and is also Williamson’s brother-in-law. Williamson wants Livingston to trade through W&B and gives him a seed capital of $ 25,000. Livingston uses the capital, makes enough money to repay Williamson. Williamson does not take it back – and tells Livingstone that he is needed to protect his big clients. The ability of Livingstone to see through the transaction – and not allow Williamson interfere with his deals is amazing in hind sight. It is difficult to guess the motives of brokers or poker players!

The story of how a bucket shop tries to pull a fast one on him – of the sugar speculation is spine chilling to say the least.

Some of these methods may not be happening in the bigger cities, but I recently heard of bucket shops in rural India – however could not verify the authenticity of the same. Surely in rural India where banks are a rarity, broker’s contracts would be a dream. Surely some kind of bucket trading could be happening. Only in a bear run would some of these horror stories come out.

However, if you see stories like Consolidated Stove- you get feeling in your stomach that you just saw it happening!

Like a Random Walk Down Wall Streets many axioms, this book too has some axioms.

“SPECULATION IN STOCKS WILL NEVER DISAPPEAR”

Sounds so simple and so profound, and true! Till date you hear horror stories of clients calling their brokers to buy “ISN E 42300” – many of them do not know the names of the scripts that they are buying. You need to be in a broker’s office to believe this statement!

“WHATEVER HAPPENS IN THE STOCK MARKET TODAY HAS HAPPENED BEFORE, AND WILL HAPPEN AGAIN.”

We have all been there, seen that, and again believe the pundits on Television when they say “This time it is different” – it of course requires a John Templeton to call these the most dangerous words in the Investment world.

“WEAPONS CHANGE, BUT STRATEGY REMAINS STRATEGY.”

Whatever you do, this is true. When you do make money (or lose money) you need to go back and question your strategy. Livermore had clear strategy – whether it was in a bucket shop or the New York Stock Exchange! I think whatever works for you as strategy – should be questioned repeatedly so that your brain does not blind side you into a false sense of confidence.

“THOU SHALL NEVER FIGHT THE TREND”

The trend is your friend. This is a timeless, and perhaps a useless saying, because the human mind’s ability to see a trend is not so simple. In fact, what you see as a trend is just the mind wanting to believe the trend. Many books on mathematics and statistics keep telling you that recognizing a trend is difficult.

“LET YOUR PROFITS RUN AND CUT YOUR LOSSES SHORT”

* “NO STOCK IS TOO HIGH TO BUY OR TOO LOW TO SELL”

Jesse Livermore was everything you think he was, and more. His untimely death at his own hand is not what should be studied, and learned. We all have our pains that we must deal with. Read this book, and change your investing life forever, or don’t read it, and pay a price with your portfolio, and forgone profits. Good luck

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