More Banks Slash Prime Lending Rates

The long-standing demand of the broking community to bring back

badla in its old form forced the Securities and Exchange Board of

India (Sebi) to set up two different committees to look into the

matte.r

The second committee under the stewardship of JS Verma has

recommended some significant changes. These, if incorporated,

will make badla transactions market friendly, as the brokers term

it.

Brokers across the board have welcomed the consensus arrived at

by the conunittee members. The report is likely to be prepared in

one weeles time. The market will revive if the proposed recom-

mendations are incorporated into the revised badla," said Sunil

Kothmi,a BSE broker.

Brokers believe that once badla is introduced with fresh

recommendations, the volumes will certainly spurt. Ine

recommendations are very Positive. Specially the idea mooted to

remove the 90-days limit on carry-forward deals will have a

significant impact on trading sentiment The brokers should have

the freedom to carry forward the trades " opines Ketan

Dedhia, another BSE broker.

Brokers say that even in the regime of the revised carry-fo ward

system, the trading bers used to carry the trades fo more than 90

days. "As soon the 90-days limit was hit, the brokers used to

continue the trm tions by switching them to other names,' said

another BSE broker. "If the Wdays limit is taken away, it will

bring back the badla in its old form. This will result in higher

liquidity in the system, while at the same time increasing the

depth in the market There will also be less fluctuations on the

last day of the settlement," says Kothati.

This apart, the brokers also got away with the 90-day limit by

squaring up the transactions on the 89th day and opened it again

on the first day of the new carry- forward period.

The broldng community also welcomed the Verma Committee's

recommendation of scrapping the exposure linut of Rs 5 crore for

trading in carryforward for individual brokers. "This will also

have a positive impact as the trading members will havet he

freedom to carry forward more trades in a bull run," stated

Dedhia.

Brokers also demand that the market regulator should do away with

the classification in the types of brokers. At present, there

are two types of brokers -Type I and Type II. While Type I

brokers are allowed to carry forward their trades, the Type II

brokers are not allowed to do so.

They argue this imposes additional pressure on those clients who

do not want to carry forward their trades. In the present set

up, all the clients of Type I brokers have to necessarily pay

a 15 per cent margin. This is irrespective of whether the

client wants to carry forward his deals or not

Brokers say that this anomaly should be scrapped. Only those who

want to carry forward their deals should be made to pay a margin

and those who do not carry forward should not be penalised.