Verma Panel For Lifting Of 90-Day Carryforward Limit

The J S Verma Committee on carryforward trading has decided to recommend doing away with the 90-day limit for settling carryforward trades, as mandated by the Securities and Exchange Board of India (Sebi). This has been one of the most contentious of issues on which market players have been suggesting changes.

At yesterdays marathon four-hour long meeting, the committee reached a common consensus on key issues linked to carryforward trading.

Sweeping changes have been suggested in the existing margin structure, exposure limits by brokers and the overall time schedule for settling of trades.

The Sebi-appointed committee also discussed measures to revive carryforward trading in its original form.

 

The views of the committee will now form part of the final carry forward report, which will be prepared in two weeks time and then submitted to Sebi.

One of the key decisions arrived at was that there should be unification of margins for the carryforward system and the delivery based system. While the G S Patel recommendation is of a 15 per cent margin, this is now proposed to be reduced to 10 per cent and will be a flat 10 per cent margin for both the systems.

It has also been decided to do away with the exposure limit of Rs 5 crore imposed on the individual trading members. The exchange is of the view that with the exposure limits linked to the net worth of members, already decided by Sebi, there would be no need for placing a further limit on the exposure taken.

NSE managing director R H Patil, one of the committee members, has however disagreed on some key issues and submitted his dissent note to the committee head.

While Patil declined to comment on what the note stated, it is learnt that he had objections to the proposal to reduce the carryforward margin and the ultimate formation of a single track system of trading at the markets.

The committee has held three meetings already, with yesterdays meeting being the final one.

Verma, speaking to newspersons after the meeting, said, Badla will be technically a seven-day future in individual stocks where carryforward will be the rolling hedge.

The members debated on whether Vyaj badla shares should be kept in the clearing house. The BSE had earlier suggested that that they should be allowed to be given to financiers, bringing them into the system to lessen the paper work and the risks at the clearing house end.

It may be recalled that the revised carryforward system was introduced by the Bombay Stock Exchange (BSE) from settlement number 21 of the A group which commenced from January 15, 1996. The number of brokers who had initially opted for this system was 231 but this ultimately came down to just around 100 members.

The Verma committee was formed to review the previous committees recommendations and suggest how a revival of the original form of carryforward trading could come about.