Out of Stock

Champalal Changoiwala still goes to work in the mornings. Wearing a crisp button-down shirt, his silver hair combed into a neat part, he makes his way to the crumbling colonial edifice of the Calcutta Stock Exchange on Lyons Range, an alleyway that teems with beggars, food hawkers and fortune tellers. In his windowless office on the ground floor, he puts in eight-hour days, working the phones and scouring the financial pages for that next big investment.

Changoiwala follows this schedule because it is what he has done every day since he became a stockbroker in 1956, and because it is what his father did every day for 22 years before that. He perhaps also feels that he should set an example. He is the patriarch of a family that has followed in his footsteps. Ten among his children, nieces, nephews and younger siblings are stockbrokers. Or maybe it’s 15. “I lose count,” he says. “But you can say we have a tradition.”

Mostly, though, Changoiwala still goes to the office because he is a proud man who cannot accept the prevailing wisdom: the world he has known for more than six decades has been shattered beyond repair. “He is in a state of absolute shock, maybe even denial,” says son-in-law Sandeep Harlalka. “It will take him some time to face the truth and start thinking about the future.” The truth is that Changoiwala has little money to invest and even less work to do. His firm is deathly ill and his relatives are looking for jobs elsewhere: a daughter is thinking about opening a stand in the local market. Others may try the insurance business.

The Changoiwalas are not alone. This past March, India’s markets crashed, knocking 16% off the national stock index. Investors across the country were rattled, and Calcutta was rocked to the bone. Daily volume on the city’s exchange plunged by more than 80% and has yet to recover. Officials reckon that 400 of the bourse’s 450 active brokers are near bankruptcy. And most of them are no longer showing up at the office. The Calcutta Stock Exchange, India’s third- largest and one of the most venerable in Asia, looks like some backwater bus depot, rather than the bustling hub it used to be. Hallways are darkened and quiet. Many of the brokers appear to be either asleep on a bench or playing solitaire on the exchange’s computer terminals. Desolate bourse employees sit idle, spitting red betel-nut juice on the walls. “Everyone is just loitering about,” says Vivek Mahajan, a broker and former vice president of the exchange. “They have nothing to do.”

If the loss of business weren’t bad enough, outsiders are now saying that Calcutta’s brokers were not just victims of the March crash, but among its instigators. The Securities and Exchange Bureau of India (SEBI) concluded in a May report that the city’s traditional broker families and their old-fashioned way of doing businessthe very things that people like Changoiwala hold so dearhelped turn their bourse into a magnet for hot money and market manipulators. Foreign pundits are even less forgiving. “A cesspool,” is how John Band, the Bombay-based CEO of investment bank ASK-Raymond James describes Calcutta’s bourse. Many foreign bankers have judged the exchange to be among the worst in Asiaa mismanaged, corrupt mess.

There’s no doubt that Calcutta’s exchange was operating under a different set of rules in the months leading up to the crash. More than 90% of the city’s brokers are descendants of Marwari traders who emigrated from Rajasthan in the 19th and early 20th centuries. Contrary to the broker communities in Bombay and elsewhere, the Marwari are a tight-knit clan, often linked by marriage. They had few qualms about trading stocks among each other on the basis of a handshake. Finance for trades could be had from a number of Marwari lenders holding small fortunes, usually acquired from trading jute, but also from other Marwari-controlled businesses, such as real estate and movie-making. More than 75% of the stocks bought on Calcutta’s exchange were thought to be financed by unofficial lenders. If bothersome regulators did require documentation, brokers could always use Maya Guha, the professional forger who had a stand on the sidewalk outside of the exchange. Guha was “an institution,” one broker recalls fondly. “Everyone knew her and did business with her, too. She was part of the exchange family.” In March, Guha was put in prison for forging bank accounts.

There is not a broker in Calcutta who will deny what was going on. Indeed, most passionately defend it. Changoiwala’s brother, Kanta Prasad, gushes that the relationships forged by families who traded with one another in the gray market gave “touch and feeling” to Calcutta’s bourse that was “absolutely unique.” Mention unofficial finance to Mahajan, the former exchange vice president, and he gets so excited that his arms flail like the rotors of a distressed helicopter. “Nobody ever failed to pay up,” he coos. “It served Calcutta for 100 years. It was a beautiful system. It was something about which India should be proud.”

In the hands of the wrong people, however, it became lethal. For months Calcutta’s brokers have been pointing fingers at a Bombay operator named Ketan Parekh, a.k.a. the Big Bull. Parekh is a major-league broker who, starting last September, was taking mammoth positions in several high-profile tech stocks. When his positions topped the maximum allowed by regulators, he allegedly began placing orders through a group of Calcutta operators, including Dinesh Singhania, a local broker widely disliked for his lavish tastes and arrogance. Since most of these orders were financed with gray money, they couldn’t be traced back to Parekh. In its May report, SEBI said it believes the Big Bull was using the Calcutta gray market to ramp up the prices of his stocks. If that is the case, it worked for a while. But the sky-high prices were unsustainable and came crashing down in March, bringing the whole market with them. Singhania and three other brokers who had placed orders for the Big Bull defaulted on large payments owed to the exchange, leaving it nearly unable to meet expenses. At first the crash brought grief: brokers and investors on Lyons Range crumpled to the pavement, weeping. Then there was anger: a mob of brokers roamed the exchange’s halls vowing to kill Singhania, who wisely went into hiding.

Few people in Calcutta believe the heyday of the bourse, or its roguish charm, can be restored. The city’s private financiers were burned by the crash and are less willing to take risks, even for a friend. “All the trust has been lost,” laments Kanta Prasad Changoiwala. Volumes on the bourse are expected to take another hit after July 2, when SEBI plans to introduce new rulesincluding regulated futures and options tradingaimed at controlling market hijinks. Some brokers think the Calcutta Stock Exchange may cease to exist altogether in a few months. For Changoiwala it would be the end not just of a job but a dynasty.