In the current system prevailing on the BSE, it has been observed that there have been wild fluctuations from Monday to Friday. Normally, the market remains strong on Monday and on the last day of the settlement ie Friday, very often, there is a heavy sell-off. Even in the reverse case, volatility has been the name of the game. In either case, retail investor suffers, as he does not have access to minute details of the goings-on.

With the coming of the NSE, the big punters got additional adrenaline. NSE's settlement period is from Wednesday to Tuesday, which allows shifting of BSE positions on Friday. So, the different settlement cycles prevailing on these bourses provide another opportunity for speculations without paying carry forward charges, margin money etc.

All these arbitrage activities will vanish once the rolling settlement kicks off where each deal has to be settled separately by delivery or payment. Some may crib that this will rob the markets of its very essential characteristic, i.e. speculation. It is not true. The carrying forward of deals will still be there, but in an indirect form through Stock Lending and Borrowing scheme that will also enable genuine investors to get regular income on their blue chip investments lying idle at present. Right now, the same is happening but on a low scale in ALBM (Automated Lending and Borrowing Mechanism).

Although the introduction of rolling settlement might see volumes dwindling, which will in turn affect liquidity, it will be a temporary thing.

Once the derivatives market is developed, these problems will be taken care of. Moreover, over a period of time, once the stability is restored in the markets, there will be more retail investors chasing the equities. In fact, this has to happen, as there are limited avenues to invest with small saving rates falling. Although in the short-term, debentures and bonds provide a good option, the Indian debt market is not yet well developed. Lack of dematerialised debentures and bonds compound the already existing problems of low volumes and liquidity.

Though the decision to bring rolling settlement is commendable, finance minister and Sebi should not buckle under pressure of brokers, who will initially cry about lower volumes and liquidity.