Sebi to expand rolling system

Under rolling settlement (with the current T+5 period) trades will net within the day while open positions at the end of the day would have to getnecessarily settled (that is delivery and payment has to be made) five days later. One major benefit of the system is that excessive volatility in prices will come down.

Though some brokers insisted "rolling settlements are not good for our markets," most of them are veering around to the view that Indian markets should adopt international practices. The view taken by them is that rolling settlement would be especially beneficial at a time when the stock exchanges are poised for online trading. However, here they clarified that connectivity with banking and depository interfacing should be developed.

While initial volumes may have been low in the ten identified scrips as brokers may have found difficulty in getting clients who were willing to fork out, recent figures indicate that large trades are also possible. For instance on Thursday, Lupin Labs (one of the scrips in rolling mode) saw transactions of 1,07,000 shares on the NSE and, according to brokers, one of the largest trades involved a buy order of35,000 shares.

Brokers felt that brokers with medium sized investors will benefit as opposed to those looking for larger volumes as clients willing to take large positions that have to be netted out within the day or settled after five days might be a bit difficult to find. Some prominent mutual funds who had taken significant exposures in the ten largely software scrips initially put under the new settlement format, found themselves at the losers’ end when volumes and prices in these scrips started dipping. Fund managers’ initial frustration at the erosion in the NAVs of their schemes has now given way to hope as some of the scrips have started looking up.

Among the ten identified scrips was VisualSoft whose prices dipped by 15 to 40 per cent after it went into rolling mode. In fact, VisualSoft is another example of recoveries made under the new format. Volumes in this scrip used to fluctuate between 2000 shares and 40,000 shares. However, after it went into rolling mode, volumes went down to 100-200with a commensurate drop in prices, creating havoc with MFs portfolio valuations. Recent indications are that the scrip is again on the upward circuit with the price close to Rs 9000.

SEBI is likely to bring all the scrips under the rolling settlement system in stages. As a result, the prevailing badla system will also need to be changed much against the wishes of speculators.