Sinha said that rolling settlement was an important capital market reform measure for India which will bring in certainty of trades, reduce risk and delay in settlement and keep excessive speculation under control. The Securities and Exchanges Board of India has already proposed to introduce from December, rolling settlements in the T+5 cycle in select stocks that are traded in the dematerialised form which refers to shares held in a depository and transfers registered electronically. Sinha said that transition to rolling settlement would bring India's equity market trading practices closer to international standards.

Under the rolling system, settlement of transactions in the capital market will be done on a rolling basis instead of doing it on a fixed day in a week as at present. Analysts feel rolling settlement will help improve market liquidity. The Government has already introduced rolling settlement system for all trades in dematerialised segment to bring in certainty of trades, reduce risk and delay in settlement besides keeping excessive speculation under control, said Sinha.

Sebi chairman DR Mehta clarified that 90 per cent of trading in the capital markets will be made in dematerialised form from next year.

Noting that all forms of trading excepting derivatives are allowed in the Indian capital market at present, the finance minister indicated that legislation for introducing trading in derivatives was likely to be passed in the Winter Session of Parliament. He said capital markets without being safe and transparent to investors could not become sufficiently deep and liquid. Sinha wanted venture capital undertakings to be promoted, which are unlisted in the capital market.

He said that with globalisation spreading its tentacles rapidly, it was becoming more and more necessary for not only harmonising regulatory standards among countries, but also greater coordination among regulatory authorities to obviate cross-country risks.

Stressing the need to allow trading in derivatives in the country, Sinha said options and futures markets fulfill the need for hedging against market risk in a cost efficient way, while these markets strengthen and deepen the cash market.

He said that even if there was macro-economic stability as in India, financial liberalisation should be approached cautiously in countries where contract enforcement and effective prudential regulation are not yet fully developed. Depending upon size of the domestic economy and its capital markets, market participants can cause volatility in securities prices causing concern to investors.

To guard against undue volatility, Sinha said "We need to strengthen our regulatory mechanisms. To cope with volatility, regulatory institutions of international quality are required."

All emerging markets should nurture well capitalised and technically empowered institutions comparable with institutions of developed capital markets, he said.