Ficci, Assocham divided over Sebi ban on badla

Our Markets Bureau

New Delhi, May 15: THE Indian industrial associations — Federation of Indian Chambers of Commerce and Industry (Ficci) and Associated Chambers of Commerce & Industries of India (Assocham) — have taken different postures on the badla ban. While Assocham welcomed the Sebi decision to ban badla from July 2, 2001, Ficci was cautious in its reaction.

Applauding the Sebi decision, Assocham said in a release that ‘the move was in the right direction.’ However, Ficci felt that ‘the badla system should not be suspended at one go till an alternative is brought in place.’ With changing times and entry of overseas players and new requirements, if badla system has to be replaced this should be done in a phased manner, Ficci said.

Fearing that the ban will have an impact on liquidity, Ficci said that overnight suspension of badla system can have adverse impact on trading and result in lack of liquidity. This will hammer down stock prices, Ficci added.
Although Assocham termed the Sebi decision ‘a good move’ in the long-term, it may counter some difficulties initially. The markets are likely to experience a degree of volatility right now and may not have enough time to absorb outstandings, the chamber of industries said.

Assocham also called for doing away with restrictions on bank funding, introduction of vibrant margin trading, a faster clearing system and availability of finance against shares.

Stressing the need for clarity regarding trading in derivatives, Assocham said that futures in individual stocks should be allowed.

This could lead to deepening of the derivative market which will provide an alternative hedging mechanism
to badla, the industry association added.