The exchange is now working towards getting in place a clearing house and settlement guarantee fund (SGF) which are the pre-requisites for demat trading.

Confirming this, MSE president S Raamasubramanian said that MSE has sought the help of Price Waterhouse and the latter has already vetted the systems and procedures followed by MSE and found the same in order. The exchange, he said, is now waiting for the clearing house to commence operations in the third week of May.

The necessary infrastructure required for the clearing house has already been put in place. Software and safety lockers are ready and the staff has already been given the requisite training.

Once the clearing house begins operations, Sebi is expected to clear the Rs 4-crore settlement guaranteefund (SGF) of the MSE. The application for the same has already been submitted to Sebi and is awaiting the market watchdog's approval. The exchange also proposes to have a default insurance in order to protect the corpus of its SGF. By insuring against member defaults, the insurance company will pay the amount of default and the corpus of the SGF would be left untouched.

According to sources, members would be required to contribute Rs 10,000 each to the SGF while the exchange would chip in to the extent of Rs 1.5 crore. Steps are being taken to make necessary amendments to the exchange's by-laws to accommodate SGF. These amendments will be placed at the next meeting of the governing council. Once SGF becomes operational, the clearing house would begin acting as a depository participant by tying up with the National Securities Depository Ltd (NSDL). The existing software used by MSE can accommodate demat trading and this exercise is unlikely to cost the exchange much. The exchange's president hopes to havetrading in dematerialised shares in place by July-end.