Shareholder approval should be obtained before announcement of buy-back, Mehta said calling for an early introduction of the scheme. Outlining SEBI's recommendations to the government, Mehta said all shares that are bought back should be destroyed. The SEBI chairman, who chaired a discussion on capital markets by the Euromoney conference, said the takeover code was being reviewed by a committee headed by Justice P N Bhagawati and a report was expected in three months.

The review follows complaints by market operators about several anomalies existing in the present guidelines on takeovers,he said. ``We feel takeovers are good since that will keep existing managements in good control and investors in turn, will get the best value for their stocks,'' Mehta said.

On the question of a uniform settlement cycle for all stock exchanges, SEBI chairman said a committee was looking into this aspect. ``Softwares of stock exchanges have to be changed to necessitate a uniform settlement cycle,'' he said.

Some amount of arbitrage is healthy, Mehta said citing several instances the world over where arbitrage opportunities are allowed between different markets. Commenting on recent measures taken by SEBI including a temporary ban on short-sales, Mehta said the steps were aimed at bringing back the small investor back into the stock markets.

SEBI chairman also said within a year, the number of scrips traded in the dematerialised segment will be increased to 100 from the current level of 50.``In two to three years, Indian stock markets will be recognised as a very significant market comparable with otherdeveloped markets of the world,'' Mehta said.

Earlier speaking at the discussion, managing director of National Securities Depository Limited (NSDL) C B Bhave said after introduction of NSDL, there was a rise in the credit handed out by banks with shares as collateral.

``With demat, banks are confident of the quality of security pledged with them,'' Bhave said adding in percentage terms the amount given as credit with shares as collateral has risen to about 20-30 per cent over the last year.