Indian brokers plan protest stoppage

Many brokers in India are likely to stop trading for the day on Monday

By CNN contributor Shishir Joshi

MUMBAI, India (CNN) -- Trading on Indian stock markets is likely to be disrupted by a broker boycott on Monday.

Many brokers across India will shut trading operations for the day to protest recent rule changes.

They are demanding that the new share trading method of 'rolling settlement' be dropped and that the traditional 'badla' or carry-forward system be reinstated.

India's market regulator, the Securities and Exchange Board of India (SEBI), made the change earlier this year.

There has been a drastic drop in trading volumes since.

Securities Industry Association formed

Brokers from 16 stock exchanges formed a union -- the Securities Industry Association of India (SIAI) -- recently to voice their demands for the restoration of the 'badla' system of trading.

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They held their first meeting last week and will put their concerns to parliamentarians.

Some domestic and international institutional broking houses may not take part in Monday's shutdown because of pressure from their parent businesses.

About a dozen foreign brokerage firms account for a massive 80 per cent of the foreign institutional investment business in India.

These include Morgan Stanley, Credit Lyonnais Securities, Crosby and Jardine Fleming.

Joint ventures with international houses

Some large Indian brokerages have joint ventures with international houses, including DSP with Merrill, Kotak Securites with Goldman Sachs and Ask Raymond James.

While many firms have welcomed the introduction of rolling settlement, they also want to show solidarity with the new brokers' union.

"If I have orders from my bosses overseas to execute trades, there is precious little I can do," a fund manager at a Hong Kong-based firm said.

Since SEBI put a ban on the carry-forward trading system and introduced rolling settlement of stocks, volumes across the country's exchanges have tumbled.

"The combined daily volume of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) has come down to about $450 million in the past two weeks, compared with $15 billion a few months ago," Paresh Khandwala of Khandwala Securities said.

Slump in volume caused by market changes

"Today's market situation is because of the sudden change in the whole system. The market has collapsed," he said.

Khandwala said he wanted to see immediate restoration of deferral products, which he said could coexist with the current system.

"Let the investors choose what they like," he said.

Brokers, unable to sustain low-volume business in the new rolling settlement regime, have been queuing to surrender their terminals.

BSE statistics indicate that the number of active terminals has dropped from 7131 in February to 6200 at the end of June.

That drop of 931 terminals is about 13 per cent of the conections across the country. Another 300 terminal owners have lined up to surrender.

One more piece of bad news

For the Indian bourses, Monday's proposed boycott is just one more piece of bad news.

"It could not have been at a worse time", said one broker.

The global tech-stock meltdown and a series of scandals that included the arrest of top broker Ketan Parekh and the suspension of the entire board of the BSE in March, have all hurt the market.

As well, the disappearance of leveraged trading, the introduction of rolling settlement, political mudslinging over a defence scam, the confusion surrounding suspension of UTI's US-64 fund and a tardy economy have not helped.