The ministry is also stridently pushing for quick rationalisation of the margin system. The complaint from North Block is that there is a multiplicity of margins in the stock exchanges and Sebi is not doing much, apart from setting up an expert committee to go into it.

The ministry is also concerned over the Y2K compatibility of stock exchanges in the country. Given the increasing automation, the government wants to make sure that the bourses will not suffer a collapse at the dawn of the new millennium. These issues are to be taken up by the finance ministry when Sebi chairman DR Mehta visits Delhi sometime next week.

Sebi, on its part, is expected to raise theissue concerning definitional aspects of "units" issued by mutual fund schemes. Apparently, these "units" are considered as "securities" under the Securities Control Regulation Act, while they are not so under the Sebi Act. Clarifications are required on the subject, as dividend income distributed by the MFs may be differentially taxed because of this tangle.

Moreover, certain changes are apparently required under several sections of Income Tax Act so that FIs, NRIs and foreign companies operating in India are entitled to the benefit of tax-free dividend income on some MF schemes.

The tussle between North Block and Sebi had been on for over a year on the subject of introducing rolling settlement on stock deals. Sebi had subsequently introduced this mechanism for all demat transactions, but has held back permission to extend them to the physical format. Sebi's reasoning is that banks are not equipped to transfer funds and physical deliveries are not possible within the tight schedules prescribed by therolling settlement mechanism.

Currently, for physical deliveries, deals between Monday and Friday are squared up the next Monday and deliveries settled by cash over a two-week period.

North Block had earlier insisted on a T-plus-three settlement system, but now the ministry claims that the time limits can be relaxed. What is required is that each day's deals should be treated independently and settled accordingly. The problems over delivery schedules, etc. can be sorted out by going for a more relaxed time schedule for deliveries.

Sebi's contention that an expert committee is looking into the confusion that seems to have arisen over multiplicity of margins now prevalent in the stock exchanges has cut little ice with the ministry. The latter is insisting on some concrete action soon so that the right signals are sent out to the market. This issue is expected to figure prominently in the Sebi-ministry discussions next week.

North Block sources said that data on the definitional confusion with regard tomutual fund schemes is being processed and clarifications are expected to be issued shortly.

SEBI-North Block Talks :

* Ministry wants quick extension of rolling settlement to physical trades.

* Scepticism expressed over Y2K readiness of the country's bourses.

* Ministry wants multiplicity of margins uniformalised soon.

* Definitional clarifications concerning mutual funds for tax purposes to be announced soon.