Sinha kaeen on introducing rolling settlement system

MUMBAI, JULY 15: Finance Minister Yashwant Sinha has asked the Securities and Exchange Board of India and the stock exchanges to introduc...

MUMBAI, JULY 15: Finance Minister Yashwant Sinha has asked the Securities and Exchange Board of India and the stock exchanges to introduce rolling settlement in an effort to improve investor service. Sinha chose to make this statement at the Bombay Stock Exchange where he inaugurated the Online Surveillance System which was opposing the introduction of rolling settlement system for strange reasons.

8220;Our next effort should be to move towards rolling settlement, reduce transaction costs and take online trading to smaller towns,8221; Sinha said at the imposing Jeejeebhoy Towers, which houses the BSE operations. In the rolling settlement system, transactions will be squared up on the same day T1 instead of the existing weekly settlement system T5. Currently, the daily trading positions remained hidden because the five-day settlement system allowed for squaring up of position so that only the net situation was known at the end of the week. This can be removed once rolling settlement is introduced.

It maybe recalled that the BSE has been opposing the moves by the SEBI and the finance ministry to extend the rolling settlement system to the physical delivery segment. The proposal was moved by the SEBI and the finance ministry representatives at Monday8217;s secondary market committee meeting held in Mumbai. But the BSE president, present at the meeting, ruled out implementation of the new system on the ground of non-availability of adequate infrastructure.

The BSE8217;s argument was that its settlement system 8211; incorporating delivery of scrips against payments 8211; was not in place to treat every trading day as an independent settlement period. The National Stock Exchange had already indicated that it was for introduction of rolling settlement in the physical delivery segment.

The implementation schedule would be delayed by anywhere between three and six months because of the BSE8217;s unwillingness to go along. It would have been pointless to order only the NSE to follow the rolling settlement format without BSE doingthe same, sources said. This would have been lopsided and illogical.

The ministry and the SEBI were not thinking of extension of the new format to exchanges other than the NSE and the BSE, at this juncture. The major worry was to coax the two exchanges, which account for 80 per cent of the country8217;s trade turnover, to go for the change. Once the two bourses adopt the system, others would fall in line, it was assumed.

The fact that the SEBI was now rooting for extension of the rolling mechanism to the physical delivery segment had come as a big relief to North Block. The latter was pushing hard for the past one-and-half years for across-the-board implementation of the new settlement system but had to face consistent opposition from the SEBI. The latter, however, had already implemented the new format for all demat shares but held out till recently against its extension to the physical segment.

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With daily trade turnover at around Rs 8000 crore and total exposure per settlement touching the Rs 40,000 croremark, finance ministry was impatient to implement the new system. Reason: the exposure limit was far too high for comfort and, in case of problems, fears were expressed about a massive melt down.

The regulators were apparently even willing to provide a relaxed settlement deadline in case the new format was adopted in the physical segment. Instead of the current T58242; format, the period of time for settlement was sought to be extended to get over the so-called problems of infrastructural constraints.