Market operators out to scuttle rolling system

MUMBAI, MAY 7: A strong lobby of market operators and promoters is out to scuttle the rolling settlement system on the stock markets. Reas...

MUMBAI, MAY 7: A strong lobby of market operators and promoters is out to scuttle the rolling settlement system on the stock markets. Reason: The rolling system, which was introduced in select scrips in several stages, has prevented influential market operators from indulging in excessive speculation and make a fast buck.

The latest excuse put across by the anti-rolling lobby was that this system was instrumental in the sustained fall in share prices and volumes. 8220;The lobby against rolling settlement was quite active in arguing their case with Finance Ministry and SEBI officials recently. The regulator and the ministry should not entertain such demands. SEBI should bring all scrips under the rolling settlement system,8221; said a market expert and a supporter of the rolling system.

One reason why company promoters and market operators are against the rolling system is that over 70 companies 8212; mainly NBFCs whose applications were rejected by the Reserve Bank of India and companies which changed their names to reflect the infotech business 8212; will be coming on rolling settlement in the next phase. The whole idea of changing the names of these infotech companies is to manipulate the share prices. In short, push up the prices by taking advantage of the infotech craze among investors.

The tactics of manipulators will not work in the rolling system where transactions will have to result in delivery. This means a buyer will have to make full payment for the purchases on the fifth working day T5 system. Similarly, a seller will have to deliver the shares within the period. Put simply, investors will not be allowed to get away by just squaring up the transactions as is the case now. Currently, transactions can be squared up every week without taking delivery of shares.

Top brokers and operators will not be able to go for excessive speculation in the rolling settlement as it is impossible to take delivery of the shares in huge volumes. 8220;That is the reason why prices and volumes have fallen in 42 odd shares which have been brought under the rolling system by the SEBI. Prices of the companies which are already in the rolling system have now come to realistic levels. At least genuine investors who buys and sells in the rolling system can do business without being taken for a ride by manipulators,8221; said an investor.

Sri Adhikari share which went up to Rs 2,350 before it was put under the rolling system has now come down to Rs 400 and Aftek Infosys from Rs 5,000 to Rs 1,150. As of now, 42 scrips have already become cash shares where squaring up business is impossible. The SEBI plan is to gradually bring all shares under the rolling system. The real problem will come when A group shares 8212; which constitute highly speculative shares 8212; are put in the rolling system. SEBI and Finance Ministry are then bound to face stiff opposition as badla carry-forward business will not work in the rolling system and some alternative will have to be worked out.

Over 70 infotech8217; companies which changed their names and dud NBFCs will come under the rolling system soon. This has already upset the plans of big operators, promoters and some brokers. The rolling settlement will put an end to price manipulation and volatility in their share prices. A section of the SEBI board is keen to bring all the listed shares under the rolling plan as early as possible. They feel that introduction of this system is needed to eliminate huge volatility in share prices and indices 8212; Sensex jumping up and down by 200-300 points intra-day is common these days.

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8220;Incidence of price manipulation can be traced to large-scale unhealthy speculative trades. The extent of speculation can be gauged by the deliveries at the end of settlement. During 1998-99, delivery took place in respect of 13 of trades by value. The rest were squared up. It may be noted that delivery based trades are generaly done by the investors while non-delivery based trades by the speculators including brokers,8221; says a study by the National Stock Exchange NSE.

A trader can do any amount of short selling or accumulate a long position and square up the trades before the end of the settlement period or on the same day. Even if he is required to give delivery, he has the option to carry forward to next settlement period or shift position from one exchange to another. The NSE study has said the introduction of on-line trading has also resulted in the sharp increase in speculative transactions. Since the orders are executed at quick pace, a large number of traders indulge in short-term speculation in the active scrips.

Dematerialisation of shares 8212; one of the prerequisites for therolling system 8212; is fast progressing. Stock lending, another vital factor, now needs to be fine-tuned before bringing the entire market under rolling settlement.