At present, the 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, brokers will have to pay custody charges, 100 per cent brokerage and clear housing expenses every week. This means that the cost of settlement will increase 12 times in 90 days compared with the present system, Sahny said. Consequently, the DSE board had written to Sebi noting its inability to introduce the committee's report.

The Shah committee, at itsmeeting on April 26, had noted that the present system of carry forward transaction is highly skewed in favour of short sellers. Under the present system, a short seller can carry forward his position without bringing in securities. In addition, he gets the carry forward charges as well. On the other hand, for a long purchase, funds have to be arranged through a vyaj badla financier (if securities are delivered) or he has to pay carry-forward charges to the short seller.

DSE brokers say the Shah committee's opinion that the existing carry forward system suits short sellers is a misconception. It is not true that the system is always in favour of short sellers, L R Munjal, a DSE broker said. A buyer also benefits through the system depending on his position in the market. If sellers outnumber the buyers, the system will benefit the latter as a seller will have to pay `ulta badla' to the buyer, he said.

According to the committee's proposals, every oustanding position should be settled either by delivery ofshares or payment of cash, which means that a short seller will have to arrange for the securities through borrowing, while long buyers will have to arrange for funds through vyaj badla financiers. This will entail a badla session being split into two -- one for financing and the other for stock lending. DSE members also felt that the Shah committee proposals would wipe out small brokers. In addition, as liquidity would be drastically curtailed in the market, small investors would be severely hurt, a broker said on condition of anonymity.