Brokers Flock To Nse For Badla

The hurried decision taken by the Securities and Exchange Board of India to disallow badla, or finance charges, to be paid to short-sellers under the carryforward mechanism at five leading bourses (Mumbai, Calcutta, Delhi, Ludhiana, Ahmedabad) is forcing brokers to shift to the National Stock Exchange (NSE).

The NSE's automated lending and borrowing module permits the short-sellers to receive finance charges.

The issue is snowballing into a confrontation between the watchdog and the bourses. The affected stock exchanges are meeting to make a joint presentation to Sebi.

"Already, participants have started shifting all short carry-forward positions from various exchanges to the ALBM since short-sellers on the NSE are eligible to receive finance charges," said a broker.

 

"Sebi will have to review its earlier stand on short sales for all exchanges or amend the ALBM system. Otherwise, players will take advantage of the lacunae," said another broker.

Several badla financiers and institutional brokers acknowledge that finance charges will generally be in favour of the short-seller on the NSE.

They said this method was adopted as Sebi, at the recent meeting of its risk management system committee, decided not to allow any carry-forward charges to short-sellers for all settlements ending after May 31, 2000.

NSE officials said ALBM was not same as the badla system because there are no carry-forward positions. "Unlike what is being made out by other exchanges, the margins are actually higher than any other similar product because exposures are being counted twice," said an NSE official.

"We think the ALBM is particularly suited to the rolling settlement regime and is completely synergistic with index futures. We are positive that other exchanges, if they take a careful look, may actually want to adopt this product," the official added.

Under the ALBM, stocks are lent by institutions to the clearing corporation on behalf of the client and the NSE settlement cycle is completed. Since the stocks are just lent, the buy/sell positions are immediately reinstated on the opening day of the new settlement.

NSE brokers said there are lot of similarities between the ALBM and the badla system as both are stock lending and borrowing mechanisms.

"However, only badla (contango charges) is explicitly recognised as vyaj badla. It is only a financial transaction, there is no stock lending involved. The shares are kept at the clearing house and no limits and margins are applicable on it," said an NSE broker.

At yesterday's trading in the ALBM segment, all the stocks were quoted in favour of short-sellers and they would be entitled to finance charges.

THE BODLA STORY

* Sebi decides not to allow any carryforward charges being paid to short-sellers

* The decision forces brokers to shift to the NSE

* Short-sellers on NSE can receive badla under the stock lending plan

* Affected bourses are coming together to make a joint presentation

* Brokers demand alternative amendmednts to NSE's stock lending norms

* NSE offcials say ALBM is particularly suited to the rolling environment