Big Bull Case Study
What led to the rise of Big Bull - THE SCAM
Harshad Mehta rose to unimaginable heights. He earned the nickname of the BIG BULL owing to his initiation of the bull run in the stock market. The question arises- How did Mehta achieve what he did by being a mere stock broker?
Mehta was an opportunist. The entire debacle was the fact that he capitalized a loophole in the banking system rather than a securities scam. Harshad Mehta did manipulate the securities and raised crores of rupees which were thereafter used for trading stocks. He was dipping illegally into the banking system to buy his stocks.
Various policies and regulations were stipulated in the Indian Banking System which was perceived as opportunities by Mehta to mint money. A careful …show more content…
Fridays were decided as the stipulated day for the banks to show their statements as showing these statements by the government of India.
There was an additional clause that stated that the average percentage of bond holdings over the week mandatorily needs to be above the SLR but the daily percentage was given more flexibility and was not necessarily required to be above the SLR. This gave the liberty to the banks to schedule the sale of their bonds in such a way that it would generate maximum profit. Banks started to sell bonds in the earlier part of the week and purchasing of bonds shifted to the end of the week.
This capital that was earned at the end of the week was invested in various bonds. The traffic of the banks while selling these bonds at the end of the week increased by the day. This caused desperation in the banks to buy bonds at the end of the week. It was getting difficult for the banks to handle the sale of bonds along with carrying out their essential activities effectively and efficiently which is where a middleman or a broker was …show more content…
The RF in a nutshell is a secured short-term loan from one bank to another. The loan period generally lasts 15 days. It is similar to the concept of mortgage. The bank lends against government securities in a similar fashion as a pawnbroker lends against jewellery. The transaction occurs in such a way that lending bank buys the securities from the borrowing back at a stipulated price. At the end of the term of the loan, the bonds are purchased back by the borrowing bank at a higher price. The price variation is not very drastic but the final amount is certainly higher than the initial amount.
It was stated that Harshad Mehta and his accomplices made use of this ready forward deal as a channel to flush out money from the banking system with great success.
The initiator bringing the two banks together to strike a deal is a broker, who in exchange for his services charges commission. The cash or securities are not handled by the broker in a general transaction. In this case, all deliverables were handled by the broker. A simple flow chart depicting the flow of securities and payments between the banks and the broker is given below.
Seller hands over the securties to the
Harshad Mehta rose to unimaginable heights. He earned the nickname of the BIG BULL owing to his initiation of the bull run in the stock market. The question arises- How did Mehta achieve what he did by being a mere stock broker?
Mehta was an opportunist. The entire debacle was the fact that he capitalized a loophole in the banking system rather than a securities scam. Harshad Mehta did manipulate the securities and raised crores of rupees which were thereafter used for trading stocks. He was dipping illegally into the banking system to buy his stocks.
Various policies and regulations were stipulated in the Indian Banking System which was perceived as opportunities by Mehta to mint money. A careful …show more content…
Fridays were decided as the stipulated day for the banks to show their statements as showing these statements by the government of India.
There was an additional clause that stated that the average percentage of bond holdings over the week mandatorily needs to be above the SLR but the daily percentage was given more flexibility and was not necessarily required to be above the SLR. This gave the liberty to the banks to schedule the sale of their bonds in such a way that it would generate maximum profit. Banks started to sell bonds in the earlier part of the week and purchasing of bonds shifted to the end of the week.
This capital that was earned at the end of the week was invested in various bonds. The traffic of the banks while selling these bonds at the end of the week increased by the day. This caused desperation in the banks to buy bonds at the end of the week. It was getting difficult for the banks to handle the sale of bonds along with carrying out their essential activities effectively and efficiently which is where a middleman or a broker was …show more content…
The RF in a nutshell is a secured short-term loan from one bank to another. The loan period generally lasts 15 days. It is similar to the concept of mortgage. The bank lends against government securities in a similar fashion as a pawnbroker lends against jewellery. The transaction occurs in such a way that lending bank buys the securities from the borrowing back at a stipulated price. At the end of the term of the loan, the bonds are purchased back by the borrowing bank at a higher price. The price variation is not very drastic but the final amount is certainly higher than the initial amount.
It was stated that Harshad Mehta and his accomplices made use of this ready forward deal as a channel to flush out money from the banking system with great success.
The initiator bringing the two banks together to strike a deal is a broker, who in exchange for his services charges commission. The cash or securities are not handled by the broker in a general transaction. In this case, all deliverables were handled by the broker. A simple flow chart depicting the flow of securities and payments between the banks and the broker is given below.
Seller hands over the securties to the