Lack of liquidity and depth in the stock markets have time and again been related to the missing link of carry forward in the stock market operations.A 15 point plan released by Federation of Indian Chambers of Commerce and Industry (FICCI) in February 1997 stressed on the need to reintroduce the old version of badla which would impart liquidity to the system.

The J S Verma Committee will meet in Delhi on June 6 to decide upon the future of Badla. The committee comprising of M G Damani (BSE president), R.H.Patil, (managing director of NSE) and M M Kapoor (UTI) is working on the recommendations made for the reintroduction of badla in BSE.

In the wake of the strong representations and attempts made to introduce futures and options, the BSE members have been pushing through their demands for the reintroduction of badla in its original form stressing on the need to protect the interests of the small time investors.

"The fact that the carry forward system provides small investors with financing, that enables them to withstand short term manipulations by big operators, itself serves the purpose for its reintroduction," said M G Damani.

"The nature of business conducted on NSE and BSE every Tuesday, and the rampant reshuffling of positions from one exchange to the other is due to the non availability of carry forward facilities, revival of old badla can curtail these malpractices especially because the exchange is ready with the safety measures such as capital adequacy and online margin surveillance," he added.

As per the recommendations of BSE the following changes are expected to provide liquidity and 'supervised' speculation in the market : (1) Limit of Rs 5 crore for carry over from one settlement to another to be removed. Also the sub limits of Rs 3 crore each for purchase and sale within the overall limit of Rs 5 crore should be removed.

(2) The limit of Rs 50 lakh per scrip should be removed.

(3) Non availability of shares to the financier is coming in the way of financiers making big commitment as they perceived big risk unless they get shares in lieu of finance provided by them.

Further, BSE has now also enforced prudent capital adequacy norms on all its members. In addition there is a daily margin of 15 per cent on sales and purchases. This 15 per cent margin is also paid on the carry forward of transactions to the next settlement.

The exchange has also introduced a new format to collect margins in carry forward scrips. Under this a normal carry forward margin of 15 per cent is to be paid, however, if the loss is more than the stipulated 15 per cent limit the entire notional loss has to be paid as mark to market margin.

The revised carry forward system which is operational from 1996 only in BSE was forced upon the exchange by Sebi, promising that it would review the system after three months.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.