But the Indian stockmarkets are very familiar with and are driven by carryforward (the badla mechanism on the BSE) or near carryforward (the inter-exchange arbitrage) transactions. Now, a rolling settlement format will make the current badla format very difficult if not impossible to follow.

As a pointer, SEBI has decided to kick off trading with 19 securities that are not in the list of eligible securities for badla trading. Another 12 securities (once again non-badla) will be introduced only when there is connectivity between the two depositories and badla stocks will be introduced only if theexchanges can come up with a badla model for rolling settlement. But it is a fact that even if an alternative form of badla is introduced the speculative edge that intra-settlement trades gave the market will disappear for good.

But if there is going to be a separation of the cash and forward markets, as there is every likelihood of happening, there will have to be a link between the rolling settlements and market making in stocks in the cash segment. Rolling settlement will definitely reduce the incidence of speculative volumes, and this will have to be compensated by a system of market making where at least minimum liquidity is assured.

Even if all the uncertainties are sorted out, there are other issues mainly related to the financial infrastructure in the country which neither the stock exchanges nor SEBI can control. Besides, another crucial aspect will be that of funding the brokers. This point will be highlighted if market making becomes a necessary component of introducing liquidity. A greaterchallenge will be the depository system.

NSDL and CDSL have yet to sort out their connectivity problems with each other. Besides there are still teething problems of settlement in the paperless mode, and pushing this system into a daily settlement mode will put more pressure on the depositories.

The ideal situation will be one where there is a shorter settlement cycle, but which also has a very efficient forward mechanism. Such a development will speed up the development of the capital market as well as begin to provide depth to the market.