The present crisis has substantiated the case for a demutualised exchange. The crisis of 1998 had prompted such talk, but it dissipated sooner than it emanated. The genesis of the present crisis lies in the structural problems of a broker-controlled exchange. The broker-members are privy to crucial information and information leakages are difficult to rule out.

It is not as if a professional governing body would fare better than the present broker-member body. Demutualisation may not always solve the problems as it would still be possible for influential members to extract price-sensitive information and play the markets. Avers Mr NK Jhaveri, director, Kotak Securities: "Till the time there is a conflict of interest, howsoever hard a line is drawn, it would be difficult to remain impartial. The remedy perhaps lies in having a better monitoring system that detects breaches faster and deals effectively with them." But there is still a fair chance of success of demutualisation concept as observed in US stock markets such as Nasdaq.

There are certain structural anomalies like the option of having several settlements (at present seven cycles) across the 24 different stock exchanges around the country provides lot of arbitrage opportunities, resulting in higher volatility. Precisely for this reason, some big brokers have been opposing Sebi's move of bringing in rolling settlement. Yet another factor warranting an urgent introduction of rolling settlement is that the ratio of carryforward to total turnover has been very high in India's premier stock exchanges. This indicates higher speculation than genuine investment.

Brokers' opposition to the rolling settlement is under the pretext that it will kill volumes and liquidity. Initially, it is bound to happen. But once markets become steady instilling greater confidence in investors, these problems will be taken care of. Further volumes and liquidity can be arranged through a strong derivatives market and stock lending and borrowing mechanism as is seen in developed countries.

Other than that, there are also some other measures worth considering. In the short term, excess volatility of the Sensex can also be curbed by reducing the circuit filter to 8 per cent from the prevailing 16 per cent. Moreover, if information regarding overall exposure of banks and NBFCs to equity markets is made periodically available, it would help regulators to keep a check on manipulators. Had this been the case earlier, a leading private sector bank's role in financing a market operator could have been detected in time.

There is also enough reason for Sebi to increase the depth of the market by allowing more players like insurance companies, pension funds etc. to invest and play a greater role in containing volatility. These market players have a huge amount of funds available with them and that too for a longer term than mutual funds.

Lack of transparency by players investing public funds such as mutual funds is another concern which Sebi has to address. It is alleged that a few fund managers indulge in front-running, resulting in huge losses for the mutual fund and consequently the small investor.

Sebi's sacking of broker-directors is definitely a welcome measure. It will have to keep up the good work to attract retail investors in a falling interest rate scenario.