Most importantly, however, the system of graded margins is much better than merely imposing price bands, not to speak of the disastrous decision to impose a ban on short sales. The decision to impose concentration margins will help avert a repeat of situations such as the flare-up in the scrips of BPL, Sterlite and Videocon International. Sebihas also taken the opportunity to remove meaningless regulations such as the 50 per cent margin for scrips during the book closure period. The only grey area in the regulations is in the margins to be imposed for institutional trades. Since it is the brokers who fund these trades and because the amounts involved are very large, brokers will have to find lines of credit for financing the margin requirements.

Sebi's approach in using graded margins is the right one, as it shifts the focus of attention from the so-called destabilising "speculation" to measures to protect the system. The removal of the weekly price limits may well increase volatility, as some observers have said, but this volatility will have to be paid for, and the risk of default has been considerably lowered.