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Sebi bans forward trading

May 14, 2001

In a sweeping move market regulator Sebi has decided to ban carry forward transactions post July 2, 2001. This means the end of both BLESS (on BSE) and ALBM (on NSE) by that day. The Sebi chief Dr. D. R. Mehta also said that all existing carry forward positions (i.e. as on May 14, 2001) will have to be liquidated by September 3, 2001. But carry forward positions built after May 14, 2001 will have to be liquidated by July 2, 2001. Sebi is also formulating a compulsory rolling settlement policy. There will be no price limits (limit-up or down) for 414 stocks that will come under the rolling settlement cycle from July 2. It has also decided to introduce a list of individual stocks where ‘options trading’ will be allowed. However, Sebi has decided to desist from introducing ‘futures trading’ in individual stocks.

The move is positive from the long-term perspective as it will reduce the volatility in the stock market and will also keep the unwanted elements away from the markets. However, ban on carry forward will also mean that volumes will take a hit (atleast initially). It also may discourage certain sections of investors to prune their exposure in view of the limited exit route available post July 2, 2001.

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