Some of the stock exchanges have brought forth the problem of high transaction costs involved in daily badla, though the daily settlement would be easier to implement, Varma told newspersons here on Monday after the committee's last meeting. Varma said the report would be submitted to the regulatory body within a fortnight. He said when the accounting period under rolling settlement would be on a daily basis, it would not pose any problem for implementing daily badla.

Though the committee is in favour of weekly badla, it is yet to decide where it would be exactly placed - between weekly futures and weekly carry forward systems, he added.

The ultimate aim of the committee would be to integrate the badla system with weekly futures, Varma said.

The commitee, he said, would also recommend impositionof gross margins based on clients unlike in the earlier system where it was on the basis of a broker's net exposure.

For this, the stock exchanges must be ready to ascertain exposure of each client which calls for specifying client codes in the trading software. Varma ruled out the possibility of having both the daily as well as weekly badla simultaneously as it would 'lock in' the security of the broker who opts for daily basis for a week.

On the risk management front, Varma said the committee was of the view that instead of Sebi deciding about 'micro regulatory' aspects such as which scrip to be selected for weekly badla, it should seek and approve the methods suggested by the stock exchanges themselves.

Sebi, he said, should also ask various stock exchanges to explicitly define liquidity when selecting a scrip for badla. INSIGHT
Liquidity likely to be affected
The implementation of a daily badla system will undoubtedly increase the cost of carrying forward positions. For thisreason, it would be difficult to combine rolling settlement and a daily badla system. Unless proper insfrastructure is in place for rolling settlement, such as efficient stck lending facilities, a rolling settlement system will affect liquidity.

Deepak Singh Tanwar