Poor infrastructure to hit rolling settlement

At present, stock exchanges follow the T5 settlement pattern. Some scrips are compulsorily in the dematerialised demat form, while some are in the physical mode. Even in the demat form, depository participants find it difficult to cope with the volume of transactions, market circles said.

8220;The instructions given by investors are handled in a careless fashion in certain cases, leading to auctioning of shares. In this context, if rolling settlement isintroduced, settlements will take place on a T1 basis. If volumes is to be increased, depository participants have to gear up their facilities. SEBI must activate interconnectivity of two depositories early. Any teething problems have to be sorted out soon,8221; said a broker.

Rolling settlement should be introduced only for dematerialised scrips. But will it affect liquidity in the market? In the short term, it may be the case. Due to electronic trading, rolling settlement will affect the turnover of regional stock exchanges. Due to a T5 settlement cycle and with different settlement periods in different stock exchanges arbitrage opportunities exist and this increases volume.

According to brokers, badla can co-exist with rolling settlement since investors who wish to carry over can use badla and those who need quick money can opt for rolling settlement. A shift to rolling settlement requires a strong cash market. Without futures and options in place, the hedging mechanism in the market will beaffected.

In the present scenario, only a few stock exchanges can introduce rolling settlement due to poor infrastructure. However, once introduced, domestic stock exchanges will equal foreign bourses. But, the effectiveness of electronic transfer has to be improved.

Rolling settlement can be introduced for institutional investors. Based on this experience, it can be extended to other intermediaries. 8220;In a market that lacks infrastructure, a cautious approach to any new scheme is advisable,8221; analysts said.

The SEBI committee decided to include both carryforward and non-carryforward shares in the process of selecting the 10 scrips for the introduction of the facility. The selection of the scrips will be decided by a sub-group of the committee comprising of the NSE, BSE, DSE and ISE representatives. The selection will be based on the liquidity of the scrips.

The committee members also discussed the possibility of introducing continuous net settlement CNS system based on the US model. Under CNSsystem, if 500 shares are bought on Monday and the investor sells 400 shares on Thursday, the balance of only 100 need be delivered on Monday at the settlement. This, however, will depend on the ability of the software to provide such facility.