Mumbai, July 1 The Bombay Stock Exchange will shift to a T+5 rolling settlement system for institutional trades by August 18. The changeover from the current weekly settlement will be done in two phases, with the first phase beginning from July 7.

The National Stock Exchange, for its part, has also announced the introduction of a rolling T+5 settlement from July 9 for all deals done in the dematerialised segment. Under a T+5 system, the trade is settled on the sixth day after a trade in entered into. A rolling settlement means that there will be settlements happening everyday of trades entered into six days earlier.

The BSE's move is aimed at wooing institutional investors back to the exchange and also reducing the menace of bad deliveries (including forged and fake shares). A formal presentation on the rolling settlement system was made today to custodians and financial institutions by the BSE.

Christened as `Sunshine trades', the first phase of the shift to rolling settlements will start with a weekly settlement routed through the clearing system house. After this trial phase, the plan is to shift to a T+5 system from August 18.

Announcing the move to representatives of custodians and institutional investors, MG Damani, BSE president, said: ``This is a step towards greater transparency and will help discovere a fair price for all telephone trades. We are open to your suggestions to make it more investor friendly and hope to reduce the settlement time to T+3 (in due course).''

As defined by the exchange, Sunshine trades would mean trades in all stocks registered in the name of financial institutions, mutual funds, foreign institutional investors and banks.

The majority of institutional trades is currently done by the custodians through the unorganised telephone market, where the concept of a ``fair price'' for stock is almost absent. This new system will help institutional investors arrive at the fair price.

In phase I, the selling member will be identified as the introducing member and will be responsible for bad delivery shares, if any, so that the buyer is assured of a rectification. In phase II, there will be no such differentiation and each member will be considered responsible for any such questionable share introduction.

NSE firm on indemnity issue: Deals done through this segment will be guaranteed by the soon-to-be operational trade guarantee fund and members will not be allowed to give any hand deliveries to other memebers.

During the course of trade, the seller will be permitted to specify the lot offered for sale. However, in the absence of such a minimum trade quantity, the transaction may be executed at market lot or in multiples thereof.

For deals made under the new rolling settlement, the circuit filter will stand reduced from 15 per cent to 10 per cent. The circuit filters, however, will be applicable on the closing rates available in the normal segment.The no-delivery information provided for the normal segment will also be applicable for trades under this new segment.

One of the important aspects of `sunshine trades' will be that there will be no auctions conducted. But shortages, if any, will be directly closed out at the highest price for the shares in this segment.

The payment will be done through directly debiting or crediting of members' accounts with the Bank of India—Stock Exchange branch. The members will, therefore, have to ensure that they maintain a clear balance in their current accounts with the bank everyday. If sufficient funds are not maintained by a member in his account on pay-in day it would be treated as default.

The identities of the members dealing in this segment will be disclosed at the discretion of the user. The members will have to maintain a separate order book for the T+5 settlement.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.