Harshad Mehta, the man behind the 1992 scam which lead to the crash of Stock market was also known as the Amitabh Bachchan of Dalat Street. He had a different vision for how brokers trade and stock market.
Biggest scams in Indian stock market
With systematic fraud involving stamp papers and bank receipts, he was behind the crashing of the stock market in 1992. The fraud summed up to a whooping Rs 4,000 crore securities scam and it changed the Dalal Street game forever. Because of this fraud there were many changes that took place, and The Securities Law Act of 1995 was introduced which broadened the jurisdiction of the SEBI (securities and Exchange Board of India) and allowed it to regulate FIIs, credit rating agencies, FIIs and depositories.
It’s been 28 years since the scam and let’s see what are the changes that the Indian Stock Markets has seen over the years since the scam.
1 Settlement cycle: Earlier in 1992 the time limit within which the brokers had to pay full money and take deliveries of their stocks was 14 days and was called the settlement cycle. Now it has been slashed down to two days and soon SEBI will introduce a 1-day cycle.
2 Minimum Balance: In 1992, customers didn’t have to maintain a minimum balance to ensure to buy stocks but now that has changed, and customers won’t be allowed to buy stocks if they don’t have a minimum money in their account.
3 Electronic Transactions: Earlier the counter party risk was evident, and all settlement of trades was done through paper. These days due to the technological advancements, all trades happen through clearing corporations and are electronic.
4 Brokers Approval: You don’t need approval from a broker these days to open an account and the risk from the customer is reduced as there is a channel they need to take and have margin requirements. Today you can open a demat account in 15 minutes.
5 Brokerage Firms role: Earlier they acted as advisory, so it could lead to fraud, these days they only act on execution.
6 Brokerage fee: Earlier there was a 1% brokerage fee for equity delivery trades but now you don’t have to pay anything.
7 Price difference: In 1992, dealers told different prices to customer than the actual trade price and used to pocket a cut. Now a days the process is 100 percent transparent.