Speaking to reporters on the sidelines of IOSCO's emerging market committee meeting in New Delhi, Mehta said dematerialisation (or trading in the paperless mode) is a necessary pre-requisite for introducing rolling settlement. The impracticality of introducing rolling settlement in the physical segment stems from the fact that such shares cannot be transferred electronically and, hence, can lead to problems of bad deliveries. This may, in turn, result in inordinate delays, thereby jeopardising the whole process.

The rolling settlement, unlike the existing system where there is a fixed settlement day every week (like Fridays on the Bombay Stock Exchange and Tuesdays on the National Stock Exchange), allows roll-over of settlements on a T+5 cycle, reducing the risk of price manipulation and volatility.

Sinha had on Tuesday said the government would soon introduce rolling settlements for all its share segments. "It is proposed to introduce rolling settlement in the physical segment shortly," Sinha had said while inaugurating the meeting of IOSCO.

Sinha said that rolling settlement was an important capital market reform measure for India which will bring in certainty of trades, reduce risk and delay in settlement and keep excessive speculation under control. However, with Sebi chairman saying it is not workable, the differences of opinion between the Finance Ministry and the SEBI have come out in the open.

The SEBI has already proposed to introduce from December rolling settlements in the T+5 cycle in select stocks that are traded in the dematerialised form which refers to shares held in a depository and transfers registered electronically.

Under the rolling system, settlement of transactions in the capital market will be done on a rolling basis instead of doing it on a fixed day in a week as at present. Analysts feel rolling settlement will help improve market liquidity.

The government has already introduced rolling settlement system for all trades in dematerialised segment to bring in certainty of trades, reduce risk and delay in settlement besides keeping excessive speculation under control, Sinha said on Tuesday, arguing for an early beginning of rolling settlement in all share segments.

The Sebi chairman's contention is that all shares should be dematerialised before putting them in a rolling settlement system. However, demat has been introduced only in A group and select shares in B1 group. ``It's surprising that Sinha and Mehta are singing different tunes in the public. There should be a consensus on an important issue like rolling settlement in all shares. Without dematerialising shares, it's virtually impossible to start rolling settlement,'' said an analyst.

On the other hand, marketmen are also skeptical of the Finance Ministry's proposal to push rolling settlement in all share segments. The SEBI move to start compulsory demat trading in select shares had created chaos in the market. With registrars and depository participants finding it difficult to clear demat backlogs, investors are running from pillar to post in registering their shares in the demat mode.

This is not the first time the Finance Ministry is pushing for an early rolling settlement. The Finance Ministry had been pushing for rolling settlement for quite some time despite opposition from the regulator. The SEBI move to start rolling settlement in select shares from December was due to the ministry pressure.