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Sebi says volumes on bourses will rise

The Securities and Exchange Board of India said on Monday the country's two largest bourses expected trading volumes of shares on rolling settlement to rise over time.

Volumes have been thin since July 2, when the list of stocks on rolling settlement was expanded from 163 to 414. These stocks together account for more than 90 per cent of daily turnover.

In rolling settlement, all trades must be closed at the end of each day and transactions settled five business days later.

"Initially investors are not fully aware of the system," Securities and Exchange Board of India chairman D R Mehta told journalists at a news conference.

"They sit on the fence, but once they understand the system, volumes go up. Also, ultimately they have to do business...The impression conveyed to us (by the exchanges) of these changes is that turnover would increase over time."

The expansion of rolling settlement came along with a ban on the century-old carry forward facility, which critics say enabled manipulation and created excess volatility.

This system allowed investors to keep positions open from one settlement period to the next by paying a small fee. The popular facility accounted for 90 per cent of trades before the ban.

Since the ban took effect, daily turnover on the Bombay Stock Exchange has shrunk to 40-50 million shares, down from 150-200 million a day before.

From next year, all remaining issues in which trades can be settled electronically will move to rolling settlement, Mehta said.

"This (the introduction of rolling settlements) is a reform measure and has come to stay," he said.

Brokerages banned

Mehta also said that disciplinary action had been taken against several brokerages for initiating trades which brought trading to a halt July 4 on the National Stock Exchange.

On July 4, two small trades caused the NSE benchmark index to leap 40 per cent, tripping a new circuit breaker and bringing trading to a halt for 75 minutes.

Under these rules trading is halted whenever either of two benchmark indices move more than 10 per cent in either direction. Trading was resumed after authorities annulled the two trades.

Mehta said these trades, and a few others which were "not genuine", were traced to two brokerages each on the BSE and NSE.

He said their "trading terminals were deactivated the same day" and the brokerages now face disciplinary action by the exchanges.

"The BSE has already suspended for three months Angel Securities and Mahesh Kothari Shares and Stocks Ltd, while the NSE is also taking action against two brokers," Mehta said. "The message has gone down very well."

He was unable to provide the names of NSE brokerages facing disciplinary proceedings.

Other business

Sebi also said mutual funds can now invest in securities or units of unlisted venture capital funds up to a limit of 5 per cent of net assets in case of open-ended schemes and 10 per cent in case of closed-ended schemes.

Closed-ended funds mature on a specified date, while open-ended funds have no maturity date.

Earlier investments were limited to listed venture funds.

The regulator also retained its ban on not allowing celebrities to endorse initial public offerings of companies or mutual funds.

"The product should be sold on the strength of its fundamentals," Mehta said.

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