Badla (stock trading)

"Badla" was an ingenious 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.Alexander Balfour. February 1995. "Bogged-down in Bombay." "Euromoney". Issue 310. p. 96.] 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.C. Raja Rajeshwari. January 28, 2004. " [http://www.thehindubusinessline.com/bl10/stories/2004012800260600.htm From badla to derivatives] ." "The Hindu Business Line".] Susan Thomas. June 29, 2001. " [http://www.igidr.ac.in/~susant/MEDIA/ban-on-badla-2.html Ban on badla, take 2] ." "Economic Times".]

"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.B. Venkatesh. 2001. " [http://www.hinduonnet.com/businessline/iw/2001/05/06/stories/0706g151.htm Badla versus futures] ." "The Hindu Business Line".]

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