Badla (stock trading)

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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. Badla were banned by the Securities and Exchange Board of India or SEBI in 1993 (effective March 1994), amid complaints from foreign investors, with the expectation that it would be replaced by a futures-and-options exchange.[1] Such an exchange was not established and badla were legalized again in 1996 (with a carry-forward limit of Rs 20 crore per broker) and banned again on July 2, 2001, following the introduction of futures contracts in 2000.[2][3]

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. Like a traditional futures contract, badla is a form of leverage; unlike futures, the broker—not the buyer or seller—is responsible for the maintenance of the market-to-market margin.[4]

[edit] References

  1. ^ Alexander Balfour. February 1995. "Bogged-down in Bombay." Euromoney. Issue 310. p. 96.
  2. ^ C. Raja Rajeshwari. January 28, 2004. "From badla to derivatives." The Hindu Business Line.
  3. ^ Susan Thomas. June 29, 2001. "Ban on badla, take 2." Economic Times.
  4. ^ B. Venkatesh. 2001. "Badla versus futures." The Hindu Business Line.


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