Fis Agree To Speed Up Move Towards Rolling Regime

The Securities and Exchange Board of India (Sebi) adopted the carrot-and-stick approach on Thursday and institutions agreed to press for an early move towards rolling settlements. Sebi told the institutions that they either pay-up margins or trade only in rolling settlement mode with regard to some volatile scrips.

A final decision could not be taken on the issue of slapping margins on institutions owing to some "practical problems" put forth by institutions and a committee was set up to see how these issues can be resolved.

Sebi officials are believed to have told the institutions that since they contribute to volatility in the markets as much as any other investor, they must in case of volatile scrips either pay margins or move to rolling settlements.

 

The move had its desired impact with institutions pressing the regulator to push forward even more aggressively with rolling settlements as only putting them on rolling settlements could segment the market. The regulator has also said that the margins in the rolling settlements would soon be brought down as compared to the margins in the weekly segment, and this would also serve as an incentive on institutions to move to rolling settlements.

Sebi will now review the situation in March and see if the current list of 166 scrips for rolling settlements can be extended. As institutions do not indulge in carryforward trades, a move to push them to rolling settlements in some A-group stocks could also be considered, said Sebi officials. This is the same approach that Sebi had adopted in the case of mandatory demat trading, where institutions were first brought into the system and only then were retail investors also pushed into mandatory demat trading.

Sebi chairman DR Mehta said that FIIs contended that they could face foreign exchange related issues as they are not allowed to bring in advance payment. "We have therefore decided to request the Reserve Bank of India (RBI) to nominate a representative on the committee which will thrash out the issues," said Mehta.