The Telegraph
Since 1st March, 1999
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New trade cycle to hurt investors

Calcutta, March 21: The introduction of a shorter trading cycle —T+2 — from April 1 could make life difficult for small investors. From the beginning of the next month, all trades will be settled within two days as against three days now.

Brokers are concerned that retail investors might not be able to fulfil their settlement obligations within two days, and the T+2 settlement cycle could even force many of them to leave the market.

“It is difficult to deliver shares for settlement within two days; nearly impossible if your broker lives in another city,” said brokers. In an already dull market, loss of retail investors would cost them dearly.

Experts shared the brokers’ concerns. “It is going to be very difficult for retail investors to pay in within two days,” said R. H. Patil, head of the Secondary Market Advisory Committee of the Securities and Exchange Board of India (Sebi).

“Even in developed markets like the United States, trades are settled on the third day. They have considered a shorter cycle, but keeping in mind the practical problems of shortening the cycle, chose to postpone it indefinitely,” added Patil.

“What is more, it is not quite clear what we would gain by introducing T+2. There is nothing questionable about the integrity of the market now. So, how does a shorter cycle — which is going to make life difficult for many — help'” asks Patil.

Brokers with a large clientele in upcountry centres are likely to be hurt the most. “This move is at odds with the government’s efforts to woo investments in capital markets from far and wide,” said Ajit Day, a Calcutta-based broker with a sizeable upcountry network.

Despite the resistance from among the brokers, Sebi is relentless. Even the finance minister has announced the introduction of T+2 from the next financial year. “There isn’t anything that can be done now,” said Patil, admitting yet again it would make life difficult for investors.

Sessions separated

The National Stock Exchanges (NSE) today reverted its earlier decision to merge the trading sessions of Friday and Saturday. A notice to this effect was posted on the exchange’s website and sent to the brokers through their trading terminals.

The notice said trades in these two sessions would be settled separately on March 26. It is understood that the trading sessions had to be separated for want of regulatory approval. The exchange, however, did not give any explanation for the decision.

NSE said earlier this week, its trading platform would be open on Saturday for two hours for a trial of its back-up site at Chennai. Other stock exchanges — Bombay and Calcutta — decided to match NSE.

The separation of the sessions, announced by NSE few hours after trading started today, upset a large number of investors. They said they had taken trading calls with the understanding that their open positions could be carried forward till tomorrow.

Their calculations went awry when NSE separated the trading sessions. BSE, however, has not changed its settlement plan for the two sessions. A notice on the website says the two sessions have been merged.

The Calcutta Stock Exchange, on the other hand, today announced merger of its trading sessions on Saturday and Monday. This implies that its members would be able to carry forward Saturday’s open positions till Monday.

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