Uniform settlement plan scuttled

MUMBAI, DEC 16: The proposal to create a single uniform settlement across the country's bourses was given a burial on Wednesday with all ...

MUMBAI, DEC 16: The proposal to create a single uniform settlement across the country8217;s bourses was given a burial on Wednesday with all the exchanges deciding that it was unfeasible. Interestingly, it took the MR Mayya committee two years to come to this conclusion.

quot;The general consensus was that uniform trading cycles will result in shrinkage in arbitrage business and consequently will lead to a fall in the volumes and turnover of the exchanges,quot; said MR Mayya, chairman of the committee.

quot;It was also felt that at any rate the present time is not opportune for the introduction of uniform trading cycles considering that the markets are in a bearish phase,quot; he added.

Although the committee comprises representatives of Bombay, Calcutta, Ludhiana, Jaipur, Madras and National Stock Exchanges8217;, the meeting held on Wednesday was attended by the representatives of 21 stock exchanges. quot;Representatives of all the exchanges except Guwahati and Indore stock exchanges attended the meeting,quot; said Mayya.

Thecommittee also felt that introduction of uniform settlement in bearish market would in turn affect not only the liquidity of the markets but also increase the intra-day and intra-settlement volatility. quot;Arbitrage if done with actual delivery does not lead to volatility and hence is healthy for the markets and the broking fraternity as the clientele business is already on the downslide,quot; said a committee member.

The committee also deliberated on issues related to whether there is any empirical data to prove that in the absence of uniform settlement arbitrageurs use the system to rig up prices. In the progressive scenario of rolling settlements becoming the norm with high levels of demat trading, committee members felt that all exchanges would then have a common settlement and thus having a uniform settlement at this stage would make no sense. In any case, it would take exchanges sometime to make changes in their software by when rolling settlements would be in place.

The committee was formed in July, 1997,and appears to have failed to grapple with the modernisation that has taken place in the market which has rendered issues such as uniform settlements irrelevant. Interestingly, again, the committee has not been wound up and will have another meeting, the date for which has not been fixed.