BADLA FINANCING, CFS &
M. SHAHERYAR SALEEM SHEIKH
Definition: Badla financing is a mechanism to carry forward a
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).
ONE OF BADLA
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
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...
Essay: The differences between a tour operator and a travel agent Many people are confused about a travel operator's and a travel agent's work. These two careers seem sound similar…...