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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 practised in the country has been grossly "misused" leading to total erosion of small investors' confidence in the bourses.

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 unanimous 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 2 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.

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