The badla system, which allowed transactions to be carried forward from one trading valan to the next, was banned by the SEBI in March SEBI was hoping. Q Is “badla” trading like derivatives trading? A: No. Badla is a mechanism to avoid the discipline of a spot market; to do trades on the spot market but not. the historical background to the introduction of badla in the Indian stock market, it is clear that this uniquely Indian system of forward trading in.

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Was badla different from futures?

Badla and single stock futures

This article is closed for comments. Get more of your favourite news delivered to your inbox Trding Please enter a valid email address. But the investor was supposed to pay the financer within a specified time. A more fundamental question can be raised.

What a year has been! Harshad Mehta would not have found a problem with the ban on forward trading even in its most stringent form.

Cities were renamed, liberals were shouted down and vegans found their voice. Suppose A wants to buy shares of a company but does not have enough money now. For long, forward trading in securities as in the case of commodities, was banned in the Indian market.

With the introduction of derivatives in the stock market, the need for badla was anyway over as investors trafing traders could now take leveraged positions in a much more efficient and transparent manner. It owes its existence to a clever piece of legislative response, back in the early s, to respond to the operational environment under which trading in securities took place.

Two, it is in the nature of a regulatory structure that regulations remain in force long after the circumstances which gave rise to it in the first place have ceased to operate.

In the new year, marketers will have to focus on four new essentials. Why has the Government been so finicky about not allowing anything but spot delivery? If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. The mechanism of badla finance can be tradimg with the following example: Gold extended its rally for the second consecutive week.


Even though badla remains irrevocably banned, Indian investors seem to favour derivative products which effectively resemble badla trades. Badla led to some unintended and undesirable consequences and after much heat and dust, was finally banned in by the capital markets regulator, Securities and Exchange Board of India.

Badla were banned by the Securities and Exchange Board of India SEBI ineffective Marchamid complaints from foreign investorswith the expectation that it would be replaced by a futures -and- options exchange.

Also, counterparty risk was much higher in badla trading, while futures, listed on stock exchanges, carry no such risk. After all, a forward bala is nothing but a trade where payment or delivery of scrips is effected at a future date. This suited everyone’s purpose. A more accurate causal account might just be that the Sensex enjoys far greater recognition as an index than the Nifty, but even this fails to provide a complete explanation.

All material on this site has been provided by the respective publishers and authors. Monies can be transferred at the click of a mouse button, and courier service companies have been moving bdla to anywhere in the country within 24 hours.

Tue, Jul 31 SEBI was hoping that for the purpose of speculative trading, an internationally accepted system of options and index future trading would replace the indigenously evolved badla system.

Further, regulatory framework should also ensure competitive neutrality among different participants on the stock exchanges.

What is Badla Financing?

Suggested changes would make the system cost effective, less complex, easy to implement, and will ensure level playing field among different market participants. One might venture this as a possible explanation as to why the BSE has more index future trades than single-stock future trades despite the fact that single-stock future trades share many of the features of the badla mechanisms that once ruled the BSE.


By using this site, you agree to the Terms of Use and Privacy Policy. One can do a lot of speculation in stocks.

The badla system, which allowed transactions to be carried forward from one trading valan to the next, was banned by the SEBI in March A research paper by Asani Sarkar, published in The Oxford Companion to Economics in Indiafound that the market for equity-derivatives in India was flourishing. Published on March 11, Badla was back, albeit in regulated form, with a carry-forward limit of Rs 20 crore per broker, a ninety-day trading limit and 10 per cent margin on trades.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Badla was an indigenous carry-forward system invented on the Bombay Stock Exchange as a solution to the perpetual lack of liquidity in the secondary market.

A third explanation might combine elements from the first and second ones. Badla trading involved buying stocks with borrowed money with the stock exchange acting as an intermediary at an interest rate determined by the demand for the underlying stock and a maturity not greater than 70 days.

The New Year heralds an election season marked by yearning, anger, uncertainty — and above all, hope. For he, after all, had access to the cash from the whole banking system to bank roll his speculative excesses.

For example, if a trader wanted to buy shares of company X priced at Rs each, he would have needed Rs 20, for the transaction.

Corrections All material on this site has been provided by the respective publishers and authors. To the broking community, there now came into existence a legal basis for entering into forward contracts. In the aftermath of the ban, the Indian stock markets did not perform well.