Definition: Badla financing is a mechanism to carry forward a

speculative trade.

History: Badla was a carry forward system for the

transfer of shares that has been introduced in India inside the

Bombay stock exchange as a strategy to the perpetual lack of fluid in the secondary market.

It was prohibited in by Securities and Exchange board of

India (SEBI) in 1993. This technique was suspended due to

instability prevailing on the market.

Mechanism: Badla trading involves buying share with

obtained money with the stock exchange behaving as an

intermediary in a interest rate determined by the

require of the stock being traded having a maturity not more

than 70 times.

It is usually known as Bring over Transaction (COT).



If Mr. A (Speculator) wants to get a particular volume of

stocks of a organization at some price which is currently

low and this individual ‘speculates' this to increase later on. But he does not currently have the money to acquire these

stocks and shares now. So inorder to get these stocks at a decreased

price he can do a badla transaction.

He can do that by locating a Financier who is known as a

BADLA FINANCIER. In such a case let's say Mister. B that has

enough cash to purchase these shares, etc MR. A's

request he will buy these stocks and would give the

funds and to his broker. The broker then gives the

funds to the exchange and the stocks and shares are moved

to Mister. B's account. The exchange keeps the shares to

itself in B's account.

EXAMPLE (continued….. )

Now say, 30 days later, Mr. A offers enough cash,

he shows the money to Mr. M and takes the talk about. But

the quantity he pays is greater than the total worth of

the shares because it was acquired. The excess quantity

is the curiosity charged around the shares as a loan by

B to A which is dependant upon the stock exchange..

Badla deal can only be performed through the support

of a broker. The Badla financer relies heavily on the

trustworthiness of the broker through which the transaction

is definitely processed. Considering that the shares plus the money happen to be with

the exchange, the broker's risk is also eliminated.

BADLA deal in Pakistan

The downturn started in Drive 2005 triggered the extensively held

opinion of speculations and manipulations prevailed in the

market and thus forcing Securities and Exchange

Commission of Pakistan (SECP), the regulating body, setting

up a job force to distinguish the causes of industry crash. In this context, Badla financing is normally blamed having caused

instability on the market.

 The Badla expenditure, also known as Take Over Purchase (COT), reached its maximum of more than Rs. 40 billion dollars on twenty-first

February june 2006. It started out falling after that while the index was still increasing. The index reached its peak of more than

10, 000 on sixteenth march 2006. After that both the variables

had been falling plus the market remained in downturn for a very long

time. About 22nd Aug 2005, Continuing Funding System

(CFS) was introduced which is a modified variation of CRIB.

Shortcomings of Badla

auto financing

The main problem with BADLA transaction

is Speculation!!! Infrequent twists and turns

in the market trends creating an eclectic

situation pertaining to an investor to purchase the


Real expense that is the warm money

going in the economy decreases due to

these irregular alterations in the market




The Continuous Funding System (CFS) is a type of

inventory trade financing with the buying and selling of

share shares during two coexisting transactions.

CFS is most prevalent on the Karachi Stock Exchange.

It is just a modified type of BADLA financing.

The Badla system was replaced by the constant

funding system replaced by the then Excellent minister

Shaukat Aziz in 2005.

The federal government Order

According to the notice issued by the KSE upon 22nd Aug,

" Pursuant to the meeting...


  • Lucia Wuest
  • 27.08.2019
  • Mvuma

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