Brokers seek alternative to badla

A leveraged product is a must for regional stock exchanges, says brokers' association

The Ahmedabad Stock Exchange Brokers' Association will request the Centre to introduce a system whereby a leveraged product can be made available to regional stock exchanges.

The association is preparing a draft of the proposal to be submitted to the central government in this regard.

To be structured along the lines of the badla trading system, where payments can be made after a fortnight after the deal, the proposal will be circulated among all regional stock exchanges before a final draft is made.

When Manmohan Singh visited Ahmedabad for campaigning ahead of the general elections, a representation in this regard had been made to him. Now Singh is the Prime Minister.

However, whether such a proposal will be accepted by the Union government is doubtful as badla was discontinued after futures and options trading was introduced.

"The name badla trading had negative implications and still the perception about badla is negative. So we definitely do not want that name to continue. What we are looking for is a leveraged product that will be best suited for regional stock exchanges as the kind of trading that happens in smaller centres is very different from the that on the national exchanges," said Atul Choksi, president of the Ahmedabad Stock Exchange Brokers' Association.

He said a draft is being prepared and this will be submitted to all other regional stock exchanges for their views and comments.

"After fine-tuning, the draft it will be submitted to the Union government in the form of a representation. This will be one way to encourage brokers and investors connected to regional stock exchanges," Choksi said.

However, sources in the stock broking community here are of the opinion that the finance ministry will outrightly turndown the proposal.

"Even today, despite regulations, the brokers are not making payments to investors within the stipulated time period. In either case, once the futures and options trading has been introduced, there is no scope for a provision like badla trading," said a source.

The badla trading, a sort of forward trading, was a system where a 15-day finance was available for both investors and brokers.

If the investor placed a fixed amount of shares with a broker for a period of 15 days, he would get an interest on the value of shares that he deposited with the broker, who was free to invest the shares in the market and earn money for himself.

After the specified period, the shares are returned to the investor, in case he sought them back.

Similarly, in the other form of badla trading, the investor pays the amount for shares that he purchased from a broker after a period of 15 days.

However, the broker also collects interest from the investor for a period of 15 days. This was especially useful in cases where the investor did not have money to pay to the broker immediately.