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Indivjal Dhasmana
NEW DELHI, JUNE 21: The Delhi Stock Exchange has written to the Securities and Exchange Board of India (SEBI) that DSE members have rejected a proposal by the BD Shah committee, constituted by the SEBI, to settle every outstanding position either by delivery of shares or cash payment.
At a recent informal general body meeting of the local bourse, members voiced their opinions against the proposal, stating that the present system of delivery as well as vyaj badla best suited the exchange, DSE vice president Bharat Bhushan Sahny told UNI here.
At present, settlement can be carried forward without delivery of shares for 90 days through badla payment, renewable every week. However, if the committee's proposal is put into practice broker will have to pay custody charges, 100 per cent brokerage, clear housing expenses every week. It means that cost of settlement will increase 12 times in 90 days compared to the present system, Sahny said.
As such, the board while approving the members' decision wrote to SEBIlast week its inability to introduce the committee's report at the local bourse, he said. The Shah committee at its meeting on April 26 last noted that the the present system of carry forward transaction is highly skewed in favour of short sellers. Under the present system, the short seller can carry forward the position without bringing in the securities. Besides, the short seller gets the carry forward charges as well. On the other hand, in the case of long buyer, either funds have to be arranged through vyaj badla financier (in case securities delivered) or he has to pay carry forward charges to short seller.
DSE brokers found that the committee's opinion that the existing carry forward system suits short sellers was based on misconception. It is not true that the system is always in favour of short sellers, L R Munjal, a broker at DSE said. Buyers also can get benefits through the system depending upon their position in the market. If sellers are more than buyers, the system would benefit the latter asseller will have to pay `ulta badla' to buyers, he said.
The committee opined that every outstanding position should be settled either by delivery of shares or payment of cash, which means that short seller shall arrange for the securities through borrowing and long buyers should arrange for finance through vyaj badla financiers. This may entail the badla session being split into two, one for the financing -- long buy position and other for stock lending for short sale position.
Some members of the committee said the stock lending scheme is not properly in place and it may be difficult to borrow the stocks. However, the general view was that once the borrowing of stocks becomes compulsory for settlement of short sales position, stock lending would take off. After deliberations, the committee decided that the proposition entailing settlement of every outstanding position either by delivery of shares or payment of cash is principally in order and may be implemented.
DSE brokers strongly opposed thisproposal. The proposal would in fact, entirely wipe out small brokers and as liquidity would be drastically curtailed in the market, small investors would also be severely hurt, a broker said on condition of anonymity.
The proposal could be of use to the big exchanges like in the United States, where small investors are not as small as in India, Sahny said. The Shah committee meeting was attended among others by DSE president Ashok Agarwal, who had told the meeting that he would like to discuss this issue internally with member brokers before a final decision is taken. It was decided that he would submit a report to the committee within ten to 15 days after discussing the issue internally.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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