BSE follows NSE, to replace badla with ALBM clone

BSE follows NSE, to replace badla with ALBM clone
ENS ECONOMIC BUREAU

Mumbai, Jan 4: After criticising the National Stock Exchange's Automated Lending and Borrowing Mechanism (ALBM) since its introduction last year, the Bombay Stock Exchange (BSE) has now decided to launch a similar system on the BSE replacing its badla system -- or the modified carry forward system (MCFS).

The BSE will become the second bourse in the country to begin securities and borrowing activities. BSE president Anand Rathi today formally announced the launching of the proposed Borrowing and Lending Securities Scheme (BLESS) from January 22, 2001. Earlier, the BSE had opposed the introduction of derivatives trading but launched derivatives before the NSE could do it.

Addressing a press conference, Rathi said that the exchange has introduced this new system with a view to promoting securities lending and borrowing activities and providing a commercially competitive product. The exchange has already received the approval from the securities market regulator Securities and Exchange Board of India (SEBI).

"The BSE was attacking the NSE's ALBM system so far. Then why is the BSE introducing a similar system now? The BSE had even complained to the SEBI against the NSE's ALBM. Strange are the ways the BSE opposes innovative market practices and then introduce the same," said an NSE dealer.

The only difference between the BLESS and the modified carry forward system (MCFS) would be that in the new system, the badla financier would actually get the delivery of the shares which were lying with clearing house (in the case of MCFS), Rathi said and added that the BLESS would be identical to the traditional badla system and it will also be similar to the ALBM system of the NSE.

Rathi said that with the introduction of BLESS, the existing MCFS would cease to exist and the new system would enable borrower of the securities to withdraw the shares subject to payment of appropriate margins and risk management measures.

He also said that besides providing the stock lending and borrowing facility to the member brokers and their clients, BLESS would also serve the purpose of deferral of settlement (carry forward). With this scheme in place, members can carry forward their positions of normal settlement by paying or receiving securities lending and borrowing charges.

Daily rolling badla will also be shifted to BLESS once the back offices of the brokers are ready with the required software changes, he said. The mode of margin payment and other issues will remain same as they were in MCFS. In BLESS also members will be allowed to pay 50 per cent of carry forward margins in the form of fixed deposit, he added.

BSE vice president Deena Mehta said that "the BSE wants level playing field for our member brokers as far as this segment of trade is concerned." At the BSE, members have to pay a margin to carry forward their positions to thenext settlement. In the case of the NSE member, there is no need of paying such margins to carry forward their ALBM positions, she added.

According to brokers, absence of margins is the sole factor responsible for spurt in ALBM volumes as compared to that of BSE's carry-forward (badla) system. The combined carry-forward volumes in value terms has crossed Rs 6000 crore and ALBM's share is close to 60 per cent, they added.

Mehta, however, denied that the market regulator's move to curb the naked sales (short sales) is linked to the BSE's proposal to seek introduction of ALBM. She said that short sales are necessary for the market as like long positions.