Verma Panel Report Set To Lift Carryforward Curbs

The draft report to be prepared by J R Verma, chairman of the Sebi committee on carryforward, is expected to remove all restrictions on carryforward trades imposed earlier through the G S Patel committee recommendations and Sebi's revised carryforward system.

The existing twin-track margin system which segregates the cash and the carryforward market is expected to be replaced by a single track system. While the daily margin in the revised carryforward system is 15 per cent for all carryforward trades and 7.5 per cent for delivery trades, the Verma panel is expected to impose a flat 10 per cent margin on all transactions.

 

According to J R Verma, the differential margin system was imposed earlier because the mark-to-market system did not exist and the settlement cycle used to be fortnightly. The panel feels the rate has to be reduced for the daily and carryforward margins.

The panel also proposes to treat vyaj badla financiers as any other buyer in the market. This will mean that there will be adequate margining imposed on them like normal buyers in the system. There is a possibility that the vyaj badla shares, which are currently kept in the clearing house, would be allowed to be given to financiers. This is expected to ease the burden on the clearing house of the exchange.

There are also limits imposed on the brokerwise outstanding position on any day in respect of carryforward transactions. The panel is expected to do away with the present Rs 5 crore exposure limit on the carryforward position that an individual member can take in badla trading. This will be linked to the present minimum exposure norm connected with the networth and capital adequacy of the broker.

The panel is also expected to remove the 90-day limit on the carryforward position. This provision existed even in the old badla system, says a committee member: The 90-day limit even in the old system served no purpose. Brokers squared up osition on the 89th day and open it again on the first day of the new carryforward period.

According to a paper produced by the BSE, there is significant difference in the risk management under the open out-cry system and the computerised on-line trading system. While the earlier system was based on self-certification that was checked by the Inspection department, the new system ensures that the bourse can close-out a member's position in the event of a default.