CHAPTER NO: 1

INTRODUCTION

CHAPTER NO: 1
INTRODUCTION

HISTORY

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.
When a bull market is gaining hold and when shares prices are expected to reach dizzying heights, the one
common refrain among the small investors is the lack of alternatives for multiplying returns through
leveraging one's investment.
The question often arises when one has the capacity and standing to mobilize funds for investing in the
market and one is looking for a systematic investment avenue.
All of which help in increasing one's returns many times over - if used correctly.
With the beginning of the stock markets, many of the techniques which closely approximated options and
futures came into our financial markets.
Badla can be useful for an active investor if he wishes to leverage on his investments thereby multiplying
his returns.
Badla were banned by the Securities and Exchange Board of India (SEBI) in 1993, effective March 1994,
amid complaints from foreign investors, with the expectation that it would be replaced by a futures-andoptions exchange.
The Joint Parliamentary Committee on Irregularities in Securities and Banking Transactions, 1992 (JPC of
1992) discussed the irregularities of badla.
SEBI issued a directive in December 1993 prohibiting the carry forward of transactions.
However it was recommended by the G.S PATEL COMMITTIE in the year 1995 and the carry forward
transaction in the security market were permitted
It was further modified by the J.R VARMA COMMITTIE in the year 1997

 The NSE introduced futures contracts on the Nifty in the year 2000. Finally badla was banned in the year
2000-01

CHAPTER NO: 2
CONCEPTUAL DATA

CHAPTER NO: 2
CONCEPTUAL DATA

CONCEPT OF BADLA:
Badla, in common parlance, is the Carry-Forward system which means getting something in return.
The badla system of transactions has been in practice for several decades in the Stock Exchange, Mumbai.
The badla system serves an important need of the stock market. If an investor feels that the price of a
particular share is expected to go up or down, without giving or taking the delivery he can participate in
the possible fluctuation of the share.
Financing in Badla, in effect, has two aspects to it, namely
1. Seedha badla or Vyaj badla- Here the financiers participate
2. Undha badla - Here the stock lenders participate.

There is a lottery ticket costing Rs.50, first price is 1 crore rupees. You dont have a single penny to buy it,
so you talk to your friend and he buys it for you on your behalf.
If you win, you dont have to pay that friend any share from the 1 crore you won.
You only have to give him Rs. 50 after winners are declared and in the meantime interest on that 50
rupees as long as the result doesnt come.
Thats how Badla system rolls.

WHAT IS BADLA?
In the badla system, a position is carried forward, be it a short sale or a long purchase.
In the event of a long purchase, the market player may want to carry forward the transaction to the next
settlement cycle and for doing this he has to compensate the other party in the contract.
The 'seedha badla' financier enters into the system to lend money to the market player for a return.

 This is measured as interest on the funds made available for one settlement cycle, i.e. one week or a
longer period in case of book closure badla system.
Similarly 'undha badla' or contango charges are returns paid by the stock borrower to the stock lender.
In a short sale, when the market player wants to carry forward the transaction to the next settlement cycle,
he has to borrow the stocks to compensate the other party in the contract.
The charge paid on the borrowed stock is called contango charges.
Vyaj Badla
The transaction where the lender who lends money to the borrower through the clearinghouse of
the Bombay Stock Exchange is called Vyaj Badla.

The lender takes up the delivery of the shares from the original buyer at a standard rate (average or
hawala rate) and sells the same in the next settlement back to him at a standard rate plus finance
charge, to pay for the stock for that particular period.

Vyaj Badla is not speculation since the financier or the investor is not taking any investment
position in the market.

His role is that of a financier and he steps into the shoes of the buyer only for funding the delivery
at a pre-determined rate.

BADLA SYSTEM IN INDIAN STOCK MARKET

In India, badla system was allowed for speculation in shares without paying up the full cost of the
transaction.
The term badla refers to that system whereby the buyer or seller of shares may be allowed to postpone
payment of money, or delivery of the shares, as the case may be, in return for paying or receiving a certain
amount of money.
It is oftenly also known as carry forward trading. Badla can be classified in to two types namely badla
(or contango) and ulta or undha badla (or backwardation).
The following example will explain the system of badla trading:
Example of badla:

 On March 3, X buys a state bank of India (SBI) share for Rs.300 and he is required to pay Rs.30,000 for
100 shares on the settlement day, i.e. 16 March to take the delivery.
Assuming that the price of the share is still Rs.300 on that day, instead of paying of Rs.30,000, he informs
his broker that he would like to carry forward the transaction to the next settlement period ending on 30
March.
Then the broker locates the other party (seller) who is also willing to carry forward the transaction, i.e.
who does not insist the payment of the shares amount on 16 march.
In return for agreeing to postpone the receipt of money form 16 march to 30 March, the seller imposes a
charge on the buyer, which is popularly known as badla. It means it is a charge in form of interest for the
postponement of the payment for the period from one settlement to the next settlement.
Assuming the price of SBI share Rs.300 and a badla rate 4 percent per month, X, therefore, will pay to
seller Rs 6(4x300/2x100) per share, being the badla charge for 15 days (half a month).
If the market price of the SBI share changes on 16 march for example, if it is Rs.315 then the seller is to
adjust and settle this transaction as follows: X has to pay badla charges @4 percent per month for a period
of 15 days, i.e. 6.30(4x315/2x100) per share being total Rs.630(100x6.30).
Separately, the seller has to pay to X the appreciation in the share price, i.e. Rs.15. The net amount of
Rs.8.70(15-6.30) per share will be paid by the seller, being total Rs.870 to the buyer. In this way, X is
allowed to postpone (i.e., carry forward) payment till the next settlement date.
Similarly, if the share price has decreased, i.e., from Rs.300 to 290, then the buyer has to pay badla
charges, i.e., Rs.5.80(290x4/2x100) and Rs.10(difference of Rs.300-290), being Rs.15.80 per share,
totaling Rs.1580 in order to carry forward.
Ulta or Undha badla:
Sometimes, there are certain cases where the sellers of the shares may ask for postponing the delivery of
the shares which may occur due to various reasons, e.g. number of carry forward sellers as a whole
significantly exceeds the number of buyers on carry forward basis.
In such situation, the brokers would face situation of lack of floating shares and will persuade to some
buyers to postpone the settlement to the next one.
Alternatively, they would find scrip lender who lend shares. Thus, the charge paid by the seller in such
case to the buyer is known as ulta or undha badla or backwardation charges.

Example:
Continuing the earlier stated example, let us assume that the party Y is the seller who is expecting the
price of the SBI to fall below Rs.300 per share by the settlement date. Assume that the price remains
unchanged on settlement date, i.e., march 16. However, Y feels that it will fall later, and hence, wishes to
carry forward the transaction to the next settlement date. In such situation, sometimes, the seller has to
pay charges to the buyer for such postponement, which is known as undha badla or backwardation
charges.

BADLA PROCEDURE

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 marked-to-market margin.
Example
The mechanism of badla finance can be explained as follows:
o Suppose A has to buy 100 shares of a company at Rs 50 each. But he doesn't have enough money
now.
o But the value of shares is very less now, so in order to buy the shares at current prices, A can do a
badla transaction.
o Now there is a badla financier B who has enough money to purchase the shares, so on A's request,
B purchases the shares and gives the money to his broker.
o The broker gives the money to exchange and the shares are transferred to B. But the exchange
keeps the shares with itself on behalf of B.
o Now, say one month later, when A has enough money, he gives this money to B and takes the
shares.
o The money that A gives to B is slightly higher than the total value of the shares.
o This difference between the two values is the interest as badla finance is treated as a loan from B
to A.
o The rate of interest is decided by the exchange and it changes from time to time

HOW IS BADLA DONE?

The Badla session is held every Saturday in Mumbai, Delhi and Ahmedabad and on Thursday at the
Calcutta Stock Exchange.
The scrip in which there are outstanding positions is listed along with the quantities outstanding.
Depending on the demand and supply of money, the carry forward rates are determined.
If the market is overbought, the demand for funds is more and the badla rates tend to be high and it results
in Vyaj badla
However, when the market is oversold, the badla rates are low or when in a particular stock the short
position is more, the Undha badla applies.

HOW DOES IT WORK IN REAL LIFE?

Suppose you purchase 10 shares of Reliance Power for Rs. 3000, and at the end of the day, the stock
closes at Rs.3300.

You speculate that this Reliance power share price will go even further up and you can make a handsome
profit out of this. But you dont have the money to pay to the broker and take delivery of these shares!

To solve this problem, you enter into a badla transaction, so your broker will carry out the money payment
on your behalf. Youve to keep paying him the interest rate for it (as long as you hold these shares and
do not sell them to someone else).

Badla transactions are settled on Saturday session each week.

The interest rate on Badla transaction is determined by market forces of supply and demand.

i.e. if lot people entering into Badla contract that means money is in high demand = Interest rate on Badla
increases. If broker believes that xyz share prices will go really high then hell demand more interest for
financing it because the customer will be making big profit.

In English this is called Carry forward transaction because youre carrying forward the payment date
for those shares youve purchased.

BADLA FINANCING: A WAY TO WEALTH OR POVERTY?

How do the financiers make money?

Once the days trading is over, the brokers list out their positions where they are assured of taking/making
deliveries as for delivery positions.

This helps the exchange calculate the net outstanding positions as on Friday evening (the final day of
settlement on BSE) by subtracting them for the broker's ouststandings for the week.

This difference is then traded on BSE's badla trading session, conducted on Saturday. Before the session,
the base price (hawala price) is set, which is usually the last closing stock price.

An undelivered "buy" position in scrip is known as a seedha badla in which the financers take part, while
an unfulfilled "sell" position in the scrip is known as an ulta or undha badla in which the stock lenders
take part.

Specific amounts of shares available are purchased and sold at the financier's expected interest rate (badla
rate). This interest is the financiers income.

What are its benefits?

The sole benefit is high returns of 24% in the rising market.

What are the risks?

The disadvantages are many;

Returns less than 8% in the falling market;

High brokerage (2.5% maximum) can reduce your returns,
Loss of principal due to default by broker/forward buyer and
Lack of stock selection, since the brokers decide which stock to choose, putting your money at their
mercy.

PROBLEMS
As you can see, any one without sufficient money can enter in this speculating game as long as he has
some money to pay interest rates on Badla transactions. And if luck favors him, he can walk away with a
decent profit.
So lot of people doing speculative share-trading like this = speculation + volatility.
But it may happen that share prices dont work out as they had speculated and then they refuse to pay
money or go bankrupt or suicide = not good for economy.
After 92s Harsha Mehta scam, badla system was banned in the county for a while.
As such Balda is not bad because it allows you to arrange money.
And it also allows the brokers-financiers to lend you money and earn interest on it.
Pitfalls in Badla system are same as in overspending with credit card or buying way too much stuff on
loans to an extend where 70% of your monthly salary goes in EMI payments.

BADLA MECHANISM
Meaning
A system of stock exchange trading that allows the facility of carry forward of the transaction for the
purpose of clearing, from one settlement period to another is known as badla system.

 Badla transactions can be carried out only in respect of specified categories only.
The system allowed the buyer not to make payment of the entire amount at the time of the purchase
against the security of blank transfer deed and share certificates.
Badla rates were fixed on fortnightly basis depending on the demand and supply conditions.

Mechanism
Badla system involves the following mechanism:
1. Transfer of market position
2. Stock-lending/short-selling
3. Borrowing/lending in money market
1. Transfer of market position:
In the event of the investor, of the buyer or the seller, not being in a position to settle the transaction at the
end of a settlement period either by a payment or a receipt or take delivery or give delivery.

 It is possible to transfer the position by carrying forward the transaction from one settlement period by
carrying forward the transaction from one settlement period to another by reversing the transaction.
The transfer position varies depending on the type of operator.
a. For bull operator:
o In the case of a bull operator, who is supposed to make purchase of securities but not being in a
position to do so, he can carry forward his purchase position to the next settlement.
o This happens by reversing his purchase position in the current settlement, which implies that he
has to enter in to a sale transaction at the make -up price fixed by the stock exchange.
o The making-up price is generally the closing quotation of the share in the current settlement.
o He is thus, allowed to pay or receive the difference between the contract price and this brings to an
end his earlier commitment and a new contract will thus be born.
A fresh purchase position is thus created which will be valid for the next settlement. Such a position is
created in the expectation of a rise in price in the next settlement. For availing this facility of carry
forward, the bull operator has to pay a charge known as contango to the financiers.
b. For bear operator:
In the case of bear operator, who is supposed to make sale of securities but not being in a position
to do so, it is possible to carry forward the sale position to the next settlement.
This happens by reversing the sales position in the current settlement, which implies that a
purchase transaction has to be entered in to the make-up price fixed by the stock exchange.
The make-up price is generally the closing quotation of the share in the current settlement.
He is thus allowed to receive or pay the difference between the contract price and this brings to an
end his earlier commitment and a new contract will thus be born.
A fresh sale position is thus created which will be valid for the next settlement. Such a position is created
in the expectation of a fall in price in the next settlement. For availing this facility of carry forward, the
bear operator has to pay a charge known as backwardation to the financiers.

2. Stock-lending/short-selling:
The facility, by which it is possible for an operator to sell a security without actually owning it, is called
stock-lending or short selling.
Badla transactions facilitate stock-lending for short-sellers and thus providing for higher investment.
In a falling market, the short-sellers have to purchase to cover their sales position.
This activity checks a fall in security prices. Similarly in a rising market those who have contracted to
purchase, have to sell securities to square their position, thus arresting further rise in share prices
3. Borrowing/lending in money market:

Under securities with an approved intermediary under an agreement for a specified period.

The agreement will provide for the continuance of the beneficial interest including the corporate benefits
with the lender.

For this purpose, the SEBI has conditioned that approved intermediary shall have a minimum net worth of
Rs. 50 crores.

The stock-lending scheme, also called the securities lending scheme, was introduced by SEBI in 1997,
on the recommendations of B.D. shah committee.

THE USE BADLA TO LEVERAGE ONE'S POSITIONS?

The concept of badla can be works as follows: Suppose you purchase 100 shares of HDFC Bank for
Rs250 and the stock closes at Rs260 at the end of the trading session.

You feel that the stock has potential to rise further in the coming days and you would like to hold the
shares, however you do not have funds to pay the price and take delivery.

The way out is to enter into a badla transaction, which your broker will carry out on your behalf.

Thus on Saturday during the badla session the market will arrive at a rate at which the financiers are
willing to lend you funds to carry forward your HDFC Bank position.

The funds that the financier supplies will be passed on the seller who is not aware that the shares he has
sold in the market have not been delivered but are outstanding.

In any badla transaction there are two key elements namely the hawala rate and the badla charge for the
scrip.

The badla charge is the interest payable by the investor for carrying forward the position.

The badla charge, as explained earlier is market determined.

It is fixed individually for each scrip by the market every Saturday and it is calculated on the hawala rate.

The hawala rate is the price at which a share is squared up in the current settlement and carried forward
into the next settlement in the next trading session (hawala entry is akin to a journal entry passed in
double entry system of accounting).

The existing position you have is squared up against the hawala rate fixed and carried forward after
factoring in the badla rate.

If the stock where you have decided to carry forward your position (either long or short) is very high you
end up paying high badla charge consequently if the demand is low the badla rates are low.

Say the 100 shares of HDFC Bank that you had purchased at Rs250 in the current settlement, which you
now wish to, carry forward to the next settlement.

The hawala rate is fixed at Rs260 and the badla rate is fixed at Rs.0.85 for the settlement, which is usually
a week.

The badla charge works out to an annualized rate of 17%, but the badla is usually denoted in actual cash
terms.

Your purchase rate 250.00 Hawala rate 260.00 Difference 10.00* Add Badla charge 0.85 Carried forward
rate 260.85 *(Accrues to the investor in this case. If the Hawala rate is lower than the initial rate, the
difference

has

to

be

paid

to

the

broker).

In actual practice your broker will request you to maintain a margin for arranging the badla finance.

There can be other charges too and it may vary from broker to broker.

All the charges apart from the badla charges depend on your relationship with your broker.

The amount of leverage you get effectively depends on the margin insisted upon by your broker.

If your broker insists on a 20% margin you get a 500% leverage or five times the amount you are ready to
deposit as margin.

At the end of each settlement you carry forward your position at the hawala rate and it is adjusted for
badla.

You can carry forward the transactions for settlements.

For the lay investor, badla offers another opportunity for investment - as a badla financier.

This scheme offers an annual return of close to 18 to 24 per cent, which eventually works out to 16 and 22
per cent after deducting brokerage.

As a badla financier you provide finance to the person who wants to take badla.

As a badla financier, you are not required to take any risk of bad delivery or forged and fake shares or for
physical mishandling of shares.

No tax is deducted at source for the interest you receive, and in terms of liquidity you receive your money
back on the 11th day from the Friday of the week in which you inform your broker. The shares against
which finance is given are kept in the custody of the clearing-house of the Exchange.

LIMITATIONS
However, the mechanism of badla financing can be a bit complicated when bonus, rights, dividends are
declared or when books are closed.
Therefore it is always advisable to understand the process fully before venturing into this area.
It is meant for active investors with a speculative bend of mind. This automatically implies a certain
capacity to bear losses.
DRAWBACKS
More than speculation, there are a couple of things that always bothered lay investor about the way the
carry forward system.
The most worrying was the uncertainty about the interest (badla) rates, in addition to the uncertainty of
the share price movement - especially since these appeared to have little correlation.

 Badla rates vary widely from week to week, and even in the same settlement.
If the investor knew a-priori what the carry-forward rate would be, then the investor could calculate the
risk-reward equation much better.
My second problem was the duration of the carry-forward.
One week is too short for the investors liking.
For instance, in todays depressed market the investor might be willing to take a call on Infosys or HLL six
months down the line, but one week is impossible.
Of course, this is born of my personal investment style, but the point is that the instruments should allow
for long (or short) positions of varying periods.
In recent weeks, we have seen a barrage of articles defending the badla system, and condemning SEBI's
action in proposing to ban carry forwards.
Though academics and experts agree that derivatives are the best long-term solution, market-men
disagree.
Their arguments centre on the immediate impact of the ban.
The crux of the problem is that trading volumes will collapse.
This will impact not only traders, but also investors who will suffer due to poor liquidity.
Needless to say, the worst affected will be the financial community (brokers) - whose business will
dwindle considerably.
The unwinding of long positions will also cause a near-term crash (already underway).
Some of them have even gone on to criticize futures and options, saying they are too complex, and will
take a very long time to catch on.
In this context, the lack of popularity of index futures in India is cited as proof of their unsuitability.
Investors agree with the idea that speculation is a must for healthy markets.
However, the system must be transparent and fool-proof, which badla is not.
In the recent past, operators have succeeded in manipulating carry-forward positions through internal
transactions.

 The source of funding for badla is never clear, and much is dependent on the ability of speculators to
arrange financing.
This could conceivably come from their own pockets, allowing them to ensure that interest rates are lower
than gains in any particular scrip.
As for volumes, they will be definitely impacted - but for all you know, this could provide a much needed
boost to the B group stocks currently languishing for lack of interest.
Typically, since inclusion in the forward category is decided on the basis of volumes alone and by people
(BSE members) who might have vested interests, the system encouraged market operators.
The lack of success of futures is not conclusive, as one could argue that they haven't taken off because the
financial community has a vested interest in keeping badla alive.
The lack of investor awareness about the new instruments is also not a valid reason to delay options, as
Indian traders are smart and will pick up the nuances quickly enough, especially if they have no other
option (pun intended).
To the investor the major issue right now concerns SEBI's implementation tactics, which definitely leave
much to be desired.
Rather than a blanket ban with almost no notice, a well-defined transition period would have been more
appropriate.
Though badla is slated to end next month, we still don't have a clear timetable for introduction of options.
Actually, this is where SEBI should be far more proactive and ensure that options for hundreds of scrips
become available, and quickly.
However, taking a long-term view, one must recognise that the switch to derivatives is inevitable.
It is probably better to do it now and get it over with, than to postpone the birth pains.

BADLA GROSSLY MISUSED IN CAPITAL MARKETS

JPC Capital market experts deposing before the joint parliamentary committee probing the stock scam
said on Friday that badla system as practiced in the country has been grossly misused; leading to total
erosion of small investors' confidence.

 Briefing newsmen on Friday's proceedings, JPC chairman, Shriprakash Mani Tripathi said two experts, S
C Gupta and Ajit Dey, former Calcutta Stock Exchange president, felt the badla system (forward trading)
in India had a lot of scope for misuse, which the brokers took advantage of.
Though the experts view on whether the Indian stock exchanges should have badla system or not was
divergent, they were agreed on the total misuse leading to erosion of investors' confidence particularly
that of small investors, he said.
The badla system was banned in the country from 1994 to1996 after the 1992 multi-billion securities
scam (Harshad Mehta).
It was reintroduced after D R Mehta took over as Sebi chairman. It is now being banned from July 2001
in the face of the recent stock scam.
Banning of badla system, no doubt, reduces the volatility of the capital markets, but at the same time it
grossly reduced the volume of the trading, Tripathi quoted the experts as saying.
The experts were also critical of Sebi for not being alert and felt the market regulator had failed to take
timely action to prevent the stock scam.

MODERN VERSION TO REPLACE BADLA

The Ministry of Finance has indicated to the Joint Parliamentary Committee (JPC) on the stock scam that
it would work out a permanent and refined carry-forward system, instead of the earlier badla system
which has been banned since July 2.

''Finance Ministry officials informed us that they have held detailed discussions on the issue and that the
badla system would be curbed in its original form and a more modern system would be ushered in,''
Chairman, JPC, Mr Prakash Mani Tripathi, said on Wednesday.

Come July the concept of badla will no longer exist but will still remain, although through a different
mode that is more regulated and transparent.

The two most important aspects of the new market would be rolling settlement and derivatives.

Rolling Settlement: With rolling settlement in place, investors cannot undertake intra-settlement
speculation as they have to settle their account at the end of each trading day.

This will invariably bring down speculation in the spot market.

Therefore, liquidity dries up.

COMPARISON BETWEEN BADLA AND FUTURE

BADLA

FUTURES

Expiration date unclear

Expiration date known

Spot market and different expiration dates are

Spot market and different expiration dates all trade

mixed up

distinct from each other.

Identity of counterparty often known

Clearing corporation is counterpart

Counterparty risk present

No counterparty risk

Badla financing is additional source of risk

No additional risk

Badla financing contains default-risk premia

Financing cost at close to riskless thanks to

counterparty guarantee

Asymmetry between long and short

Long and short are symmetric

Position can breakdown if borrowing/lending

You can hold till expiration date for sure, if you want

proves infeasible

to

BSE MAY REINTRODUCE BADLA IN A NEW, SQUEAKY CLEAN IMAGE

BY RAJESH PANDATHIL JUL 23, 2012

The battle for market share is hotting up in the stock market space.
With the MCX-SX getting clearance to start a stock exchange, the Bombay Stock Exchange, the oldest in
Asia, is dipping into its rich history to repeat an earlier informal system that enabled market participants
to delay delivery of securities for a fee.
The system was called badla and was widely used before the 1990s to carry forward trades.
Under this system, a financier helps a buyer buy a stock, but the buyer defers taking delivery of the
securities until he has cash in his hand.
The buyer also pays an interest on the amount borrowed from the financier, which is a fee for the badla
transaction.
Both buyer and seller were allowed to use the badla system.
The system boosted speculation and liquidity in the market.

It functioned more or less like futures and options.

The system met with a natural death after the National Stock Exchange became operational and people
moved to the derivatives segment, which offers more protection as it is under strict regulatory scrutiny.
According to a report in Business Standard, the BSE is now planning launch a new derivative product
called cash futures spread (CFS).

 Unlike badla, which was not adequately monitored, the new product will be less risky and more
transparent, the report said.
Back-room financing will not be permitted. In the badla system, this was one of the biggest risks.
In the new product, a trader can enter cash and future spread trades in a single order.
The exchange will put out a price quote for the cash-future spread of a particular security.
Three cash-future spread will be available for trade at any given time in a security for the current, next
and third month futures.
At the settlement, the one who has purchased the shares will get the stock at the agreed spread and the
other the interest.
In other words, the spread is cost of carry for one trader in the futures segment while it is interest on
financing for another trader.
CFS is likely boost healthy speculation and improves liquidity in the market, Alok Churiwala, managing
director of Churiwala Securities, has been quoted as saying in the report.

CHAPTER NO: 3
CONCLUSION

CHAPTER NO: 3
CONCLUSION

The greatest advantage of the badla system is that it allows for the expansion in the market size besides
providing excellent liquidity to the market
The biggest threat of the system is that it encourages mindless speculation leading to high volatility in
stock market prices.
More than anything, it is important to note that, the mechanism of badla financing can be a bit
complicated when bonus, rights, dividends are declared or when books are closed.
Therefore it is always advisable to understand the process fully before venturing into this area.
It is meant for active investors with a leaning towards speculation.
This automatically implies a certain capacity to bear losses.
After 92s Harsha Mehta scam, badla system was banned in the county for a while.
After the ketan parekh scam in 2000, the NSE introduced futures contracts on the Nifty in the year 2000.
Finally badla was banned in the year 2000-01

CHAPTER NO: 4
APPENDIX

CHAPTER NO: 4
APPENDIX

BIBLIOGRAPHY
FINANCIAL DERIVATIVES: THEORY, CONCEPTS AND PROBLEMS
By S. L. GUPTA

WEBLIOGRAPHY
www.en.wikipedia.org/wiki/Badla_(stock_trading)
www.themanagementor.com/EnlightenmentorAreas/finance/.../badla.htm
www.window2india.com