Rolling settlements will put an end to badla and hence, stock exchanges with badla are bound to protest the move to bring in rolling settlement. At least, one exchange has already conveyed this to the regulator.

According to sources, the focus is going to shift to make demat trading mandatory with respect to some securities in the current weekly settlement format. This would keep the anti-rolling settlement lobby at bay as well as ensure that liquidity is brought in demat shares by bringing in weekly settlement.

In their replies to Sebi, several stock exchanges have pointed out that the current infrastructure in place, is not capable to handle a settlement every day, in the physical form.

Their opinion is that even if there is a small amount of paper in the system it is not feasible to have rolling settlements. In addition to this, badla too would come to an end, some exchanges have contested.

With settlements taking place on a daily basis, it would be next to impossible for an exchange to hold badla sessions daily and the relevance of having such a system itself would be lost, even though theoretically it could be possible to have such a system.

Against this backdrop, some exchanges have suggested that since it is dematerialisation which is more important, the regulator should make demat trading mandatory in a few scrips and retain the weekly settlement in these cases.

This would give a push to dematerialisation which could, in turn, lead to introduction of rolling settlement at a later date, once the market is ready for it. Another crucial factor which might influence the Sebi decision on rolling settlement is that this could further disturb the market sentiment and hence the regulator may oppose an immediate implementation.

``What is important is to ensure that the market moves out of the paper mode. Even though rolling settlement are healthy for the market, we have to carry the entire market together.

Hence for a start, we could make demat trading mandatory in a few securities and keep rolling settlement in the second stage of reforms. Once the market moves to demat mode, rolling settlement could easily follow,'' said an NSE source.

This statement implies that the exchange will not resist any move to keep rolling settlement at bay for some more time but will instead press for mandatory demat trading in some scrips.

Interestingly, the exchange has, in response to a recent query from the parliamentary standing committee, said that the only way to give a push to the depository is to make trading in demat shares compulsory.

The Sebi chairman had earlier told The Financial Express that he would prefer to see greater levels of dematerialisation before introducing rolling settlement.

On the issue of compulsory demat, he apprehends a legal hurdle. However, the legal department of Sebi feels that it is perfectly legal to ask investors to settle trades only in demat form.