Wide range of market moves

SEBI had set up a committee under the Chairmanship of Prof. J. R. Varma, Member, SEBI to: (1) consider the proposal of BSE for introduction of carry-forward mechanism in rolling settlement, (ii) suggest adequate safeguards in this regard, and (ill) consider revisions in the existing carry-forward mechanism.

The committee included Dr. R. H. Patil, Mr. Anand Rathi, Mr. A. K. Narayanan, and Mr. M. M. Kapoor and was coordinated by Mr. R. K. Bindlish. The recommendation/observations of the Committee are:

*Since continuous Net settlement (CNS) and carry-forward could turn out to be competing products, it is desirable that a decision on CNS be taken along with the decision on carry-forward under the rolling settlement.

*The carry-forward period shrank from two weeks to one when weekly settlements were introduced; it could shrink to a day when rolling settlements are introduced. The fundamental characteristics of the instrument would not change. But the proposal of weekly carry-forward is fundamentally different from traditional carry-forward.

*The committee favoured tradeable weekly carry forward. That is, at the end of each trading day, the investor would have the choice of carrying forward a position for one, two, three, four or five days. There would be separate screens where bids and offers could be posted for each of these five variants.

*The weekly carry-forward system under the rolling settlement may be introduced as a carry-forward product. Exchanges must be allowed to introduce futures contract in individual stocks directly (without first creating a carry forward product and then migrating into a futures contract).

*Many of the controversies (regulating a type of contract as carry forward) arise because the cash market is less tightly regulated than the derivatives market and the best solution is to bring the cash market regulation on par with that for derivatives.

*Majority held the view that like the tradeable weekly forward under rolling settlement, the 3D segment is also similar to a futures contract in individual stocks.

*One of the Members and Chairman of the Committee held the view that the weekly carry-forward system under rolling settlement is conceptually very close to a future contract on individual stocks (with five different futures with maturities of one, two, three, four and five trading days) open for trading on any day. This should swiftly migrate to a full-fledged contract in individual stocks.

Volatility margin: The additional volatility margin will not be applicable for scrips in the compulsory rolling settlement. However, the regime of the volatility margin in the account period settlement will continue. The structure of volatility margin was simplified by reducing the number of slabs and also the percentage of the margin. The threshold for applicability of this margin will be 80 per cent instead of 60 per cent. There will be three slabs for rates (10, 15 and 25 per cent) instead of present six.

Price bands: It was decided to relax price bands by 8 per cent with half an hour cooling period after the scrip has hit the initial price band of 8 per cent for all the scrips failing under the compulsory rolling settlement. The price bands for account period settlement have also been relaxed on similar lines for the identified 200 scrips. These would be applicable for trading on or after July 3.

Withdrawal of additional margin: It was decided to do away with the 5 per cent additional margin on sale side, which was imposed on April 26, 2000. Accordingly, additional margin on net sale positions will not be levied on trades executed on and from June 26.

Encouragement for delivery: If the margin in respect of trades marked for delivery at the end of the day (to be certified by broker) are secured by bank guarantee from the investor in favour of the broker or exchange, the exchange may not insist on any cash component in margins. These trades cannot be squared up during the settlement period and must result in delivery. This would reduce the cost of delivery based transactions resulting in higher delivery based business.

Lower transaction charges: NSE believes in the philosophy of sharing the benefits from improved efficiency with the constituents of the market. One of the ways NSE has been adopting to share the benefits has been reduction in transaction charges. Prior to December 1998, NSE was levying transaction charges from members at a flat rate of Rs. 9 per Rs. one lakh of transactions. Based on the feedback from members, a slab system was introduced in December 1998.

Futures transaction charges: The transaction charges for all trades executed by the trading members in the futures segment will be Rs. 2 per lakh of turnover (0.002 per cent) (each side) or Rs. 1 lakh annually, whichever is higher. The members will contribute to the Investor Protection Fund pertaining to Futures Segment at Rs. 10 per crore of turnover (0.0001 per cent) (each side).

Strategic investment: The NSE decided to participate as a strategic investor in debtonnetindia.com, a new business-to-business (B2B) portal launched by the Infrastructure Leasing and Financial Services (IL&FS) to serve the requirements of private placement market for debt instruments. Such a B2B web enables market place for primary issuance of debt securities would provide investors and brokers similar levels of efficiency and transparency on the primary market segment as exchange system provides for the secondary market in debt. This infrastructure for distribution is being utilised by quality issuers for resource mobilisation from institutional Investors as it ensures effective delivery platform, deeper penetration and wider distribution. The portal will deepen the debt market and give equal access and opportunity to all players. This strategic investment on debtonnetindia.com is a logical move for the NSE in the primary debt markets and would compliment NSE's developmental efforts for the debt market.

`DotEx International': NSE.IT , the technology arm of the NSE and i-flex solutions Ltd, formed a new e-trading joint venture partnership company, DotEx International Ltd (DIL). The company will launch a vertical portal that will offer a comprehensive range of products and services to both market participants and investors. The initial suite of services include anytime, anywhere equity trading over the Net using standard PCs , mobile phones and WAP-based devices.

DIL would offer readymade technology and processing infrastructure for market intermediaries to expand their reach and service capability. For the first time in the country, online investors will enjoy transparency and one-click convenience with the integration of multiple market intermediaries such as brokers, depositories, banks and investment consultants onto a single platform. This model ensures complete freedom and flexibility for investors across the country to deal with their preferred market intermediaries. DotEx International Ltd will make the National Stock Exchange the first stock exchange in India and among a few in the world to introduce an e-trading model for its brokers and investors.

The Singapore connection: The Singapore Exchange Derivatives trading Ltd (SGX-DT), NSE and the India Index Services and Products Ltd (IISL) signed an MOU and an agreement to forge a co-operative partnership. Under the agreement, SGX-DT has been granted a licence by IISL to trade futures and options contracts based on the S&P CNX Nifty Index. SGX-DT and NSE have also agreed to co-operate in areas relating to derivatives trading market, information sharing, staff training and technical assistance. The alliance hopes to eventually encompass cooperation in cross-trading and co-clearing arrangements of each other's equity products and is an important step towards promoting regional alliance relationship.

(Edited-extracts from NSE News published by the National Stock Exchange of India.)