While the legal firm has explained the implications of "fungibility of shares deposited with the clearing house in respect of `vyaj badla' transactions", it has also given a legal opinion with regard to the working of the new system.

The report, which was elaborately discussed and a copy of which is available with The Financial Express, has recommended that the clearing house of the BSE should maintain only the records of the distinctive numbers of all `vyaj badla' shares which are deposited with it and which are deliveredby it, without allocating the `vyaj badla' shares distinctive number-wise to any broker or investor or `vyaj badlawalla'.

According to market sources, this would mean that the `vyaj badla' shares would continue to be deposited in the general pool of the clearing house, and would remain in street names. However, the transfer would be done on an account-to-account basis in the electronic mode instead of being conducted manually on a one-to-one basis.

"The legal firm's opinion was sought on the question whether it would be permissible under the rules and bye-laws of the exchange for the clearing house to do away with the present system at the outset of allocating and holding `vyaj badla' shares distinctive number-wise," explained a BSE source. According to sources, the legal opinion has been framed on the basis of bye-laws 91, 96 and 110 of the exchange.

"In any circumstances the exchange was not obliged in the first place to allocate at the outset the `vyaj badla' shares delivered to it distinctivenumber-wise amongst `vyaj badla' brokers and `vyaj badlawallas'. Even if such allocation is now done away with, the same would not be contrary to the exchange's bye-laws or any other provision which prohibits the exchange from doing so," added the source. Interestingly, the report also mentions that the current system also does not enable a `vyaj badla' broker or `vyaj badlawalla' to determine the exact share by way of distinctive numbers or share certificate number.

The report states: "A `vyaj badla' broker has no knowledge or control over which shares he would receive. Not only does he have no control over which particular broker he would enter a contract with on the BOLT, but even thereafter, the shares which these brokers would receive as allocated to his account distinctive number-wise would not necessarily be the same because the exchange adopts a system of netting off and matching ... Thus even as on date, the shares are treated as totally fungible and are allocated by the clearing house on the basisof the netting off and allocation process performed by the exchange."

While the legal firm has not examined the proposals in terms of the insurance policy available for the clearing house and the brokers, they have made it clear that proposal will have to be approved by the exchange's governing board pursuant to is powers under bye-law 110.