Mumbai, July 23: The ban on the official carry forward trading saw brokers resorting to other speculative instruments which resulted in a casino culture on the bourses. This is one reason why there is a concentration of business on the last day of the settlement on both the Mumbai and National Stock Exchange (NSE).

According to BSE figures, the turnover dipped by over 80 per cent from a high of Rs 5,056 crore in March 1994 to a low of Rs 885 crore in March 1995. During this period, however, the percentage of delivery-based purchases on the exchange showed a sharp rise from 18.29 per cent to 30.17 per cent.

Former SEBI chairman G V Ramakrishna had banned the carry forward existent on the BSE in December 1993, which was effective from March 12, 1994. Excessive speculation in the market was cited as the reason for banning the badla trade. Ramakrishna also described the soaring index as `overheated with few genuine investor participation'.

The emergence of a new `casino culture' left a negative impact on the the bourse with the delivery-based figures falling to a low of 12.83 per cent in March 1996. With the ban on official badla, speculators resorted to a game-play evenly distributed between the two different trading cycles existent on BSE and NSE i.e., `arbritrage opportunities'.

The re-introduction of badla on BSE in 1996 also failed to check the speculative activities due to various exposure limits like 90 days squaring up of settlement, 15 per cent margins on carry-forward transactions and a gross exposure limit of Rs 50 lakh permitted to each broker.

The speculation in the secondary market and the shallow nature of the market trickled down to the primary market as well and corporates were left with negligible opportunities to tap the markets.

Even with revolutionary budget and the credit policy, the index rise to 4,250 was purely speculative. The fact has been highlighted by the data on the turnover in the month of March 1997 -- Rs 15,494 crore, with the delivery figures falling to a low of 7.66 per cent.

The immediate effect of the ban on BSE was the slump in turnover from Rs 5,056 crore in March 1994 to a low of Rs 846 crores in December 1994 (in the specified section). During the same period, the average daily turnover on the bourse recorded a sharp decline from Rs 241 crore to a low of Rs 50 crore, with the BSE-30 share index hovering around 3678 and 4286.

The net FII investments on BSE also recorded a negative growth during the period between January 1994 and December 1994. The FII investments in January 1994 was a high of Rs 852 crore, which fell to a low of Rs 140 crore in July 1994 and a negative figure of Rs 6 crore in December 1994. The sharp fall in FII investments came at the time when the number of registered FIIs increased from 136 to 281 and the number of registered foreign brokers went up from 7 to 26 .

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.