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April 27, 2001
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Money > Business Headlines > Report April 27, 2001 |
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Brokers say trade volumes will dry upB G Shirsat Brokers said traded volumes on the exchanges will dry up and volatility will increase due to the thin volumes as a result of the proposal to ban badla and associated deferral products like ALBM and BLESS. However, one section of brokers said that since the outstanding positions are small (at Rs 24.36 billion), and 30 per cent of this is already paid for by way of margins, the net amount of stocks that remained to be accounted for will only be to the extent of 70 per cent (Rs 17 billion). Though this may not have the kind of debilitating impact on the Sensex, as happened in 1994 after the Sebi banned the earlier version of badla, volumes will still be impacted severely. One institutional broker suggested that without badla, there would be no badla financiers and external sources of finance, which were central to market liquidity and depth. "Even as derivative products are being proposed as an alternative to the badla system, the fact remains that without finance there can't be much depth in the derivatives and cash segments." Brokers cite the impact of Sebi's decision on December 13, 1993 to ban carry forward trading (badla). The reaction was immediately felt in the market, with the turnover on BSE declining sharply from Rs 845.36 billion in 1993-94 to Rs 677.49 billion in 1994-95. The turnover during 1995-96 receded further to Rs 500.64 billion as the Sebi was unable to take any decision on re-introducing carry-forward products. Under tremendous pressure from market participants to revive volumes and depth in the markets, Sebi introduced a modified carryforward system in January 1996 which put a limit of 90 days for carry-forward transactions. But it also added that carry-forward transaction had to compulsorily settled by delivery after 75 days. That is, operators could not annul a position within the period, which effectively went against the concept of badla as a hedging mechanism. As expected, the proposal was widely rejected by the brokers. The turnover on BSE, however, zoomed to Rs 1,24,284 crore in 1996-97 on account of significant buying by foreign institutional investors, domestic mutual funds and presentation of market friendly Budget by newly formed government. But it was only after the J R Verma committee recommended a revised version of the MCFS wherein the 90 days limit was abolished and norms requiring settlement after 75 days only through delivery were scrapped that the markets reverted to their initial enthusiasm. The volume of turnover on BSE surged to Rs 2076.44 billion in 1997-98 and further to Rs 3119.99 billion in 1998-99. Powered by YOU MAY ALSO WANT TO SEE:
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