Reacting to the Sebi move to make dematerialisation mandatory for financial institutions, foreign institutional investors, banks and mutual funds, brokers here said trading volumes on the major bourses, barring the National Stock Exchange, would be hit hard. A large section of brokers is of the view that there will be a complete segregation of the demat and physical markets. The larger institutions, which are seeking to buy or sell in large quantities will find it all the more difficult to get matching quotes.
An analyst with a leading foreign institutional brokerage said the move towards compulsory demat for institutions would mean the end of smaller stock exchanges in Calcutta, Delhi and Chennai, which do not have a demat trading segment at present.
Jaspreet Ahuja, head of sales, Caspian Securities, said the move would lead to a shakeout in the stock exchanges. In the long run, the co-existence of national exchanges like BSE and NSE along with other regional exchanges seems doubtful ... Compulsory demat is the first step towards realignment of stock exchanges in the country, Ahuja said.
The chief investment officer at another FII said the move would kill the markets in the short run, as all institutions will have to lodge all their shares held in street names for transfer in their own names. Therefore, he said, for the next two months at least, there will be no floating stock and no trading in the markets.
NSE broker Jaydeep Mehta said Sebis move to make demat compulsory is aimed at thwarting badla transactions, as after the January 15 deadline most of the trades will be in the demat segment which will leave no room for badla. It is a mockery of the capital markets, he said.
However, an academic capital market watcher said the argument does not hold as FIIs, mutual funds and domestic institutions are in any case debarred from carrying forward their trades.
