Chambers' differing views

By Our Special Correspondent

NEW DELHI, MAY 15. Two leading chambers of commerce and industry have come out with different reactions to the move by the Securities and Exchange Board of India (SEBI) to ban the carry forward (badla) system in the capital markets.

Reacting to the SEBI decision announced on Monday, the Federation of Indian Chambers of Commerce and Industry (FICCI) has said that the system should not be suspended at one go till an alternative mechanism is brought in place. Pointing out that the complete suspension of badla would have an adverse impact on liquidity, the FICCI has said that the badla system was evolved in the Indian market conditions over years and did play a role in the development of a secondary market.

If the badla system has to change because of changing times and entry of overseas players and new requirements, this should be done in a phased manner as the overnight suspension could have an adverse impact on trading and could result in lack of liquidity. This in turn would further hammer down the prices when the market sentiment is already weak in the context of the general slowdown and lacklustre trading globally which is now reflected in the Indian market also, FICCI has said.

Taking a different position, the Associated Chambers of Commerce and Industry (Assocham) said the SEBI decision to ban badla from July 2 this year was ``a move in the right direction'' and was due for sometime. But the Assocham has also said that the decision, though a good move in the long run, may encounter some difficulties initially as the markets are likely to experience a degree of volatility right now and may not have enough time to absorb outstandings.

The Assocham has also said that SEBI's macro plan should aim at introducing vibrant margin trading, ensuring a faster clearing system and availability of finance against shares. Steps such as doing away with restrictions on bank funding would also be welcome, the chamber has said.

The Assocham has also suggested that SEBI should have more clarity regarding trading in derivatives. As a number of developed markets have futures on individual stocks, it was essential for SEBI to allow this in India also as that could lead to deepening of the derivatives market as well as providing an alternative hedging mechanism to badla.

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Section  : Business
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