Stock Markets

I ndian equity markets are going to witness a major change of trading systems when carryforward products are finally phased out over the next couple of months. The banning of the archaic carryforward products marks a major break with the past; SEBI has accordingly provided for a phased transition. The outstanding positions of the carryforward products – ALBM on the National Stock Exchange, BLESS on the Bombay Stock Exchange and ‘badla’ on the other exchanges – are around Rs 2,000 crore. Closing out these positions in a short period would have depressed the markets; SEBI has, therefore, decided that all existing outstanding carryforward positions must be closed out by September 3, but fresh positions created on or after May 15 have to be wound up before July 2.

In 199495 the then chairman of SEBI, G V Ramakrishna, had banned badla as he had found excessive and uncontrolled speculation going on in the markets. In those days the absence of computerised screen trading made monitoring market positions almost impossible. However, around that time the NSE became operational with screen trading on a widearea network. The BSE followed with screen trading in the next six months. And, despite the ban on badla, the markets witnessed a spurt in trading volumes, belying the fear that without badla trade market liquidity would dry up. Despite this positive experience, the current chairman of SEBI made it his mission to bring back badla which gradually got extended to many other stock exchanges. Trading volumes on the exchanges have spurted phenomenally, from about Rs 200 crore per day in 199495 to some Rs 15,000 crore recently, before the market was hit by the payments crisis in March this year.