https://indianpedia.org/index.php?action=history&feed=atom&title=Badla_stock_tradingBadla stock trading - Revision history2026-07-31T18:12:53ZRevision history for this page on the wikiMediaWiki 1.45.4https://indianpedia.org/index.php?title=Badla_stock_trading&diff=75798&oldid=prev>InternetArchiveBot at 16:03, 31 October 20182018-10-31T16:03:31Z<p></p>
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'''''Badla''''' was an indigenous [[forward contract|carry-forward]] system invented on the [[Bombay Stock Exchange]] as a solution to the perpetual lack of [[Market liquidity|liquidity]] in the [[secondary market]]. ''Badla'' were banned by the [[Securities and Exchange Board of India]] (SEBI) in 1993, effective March 1994, amid complaints from [[Foreign direct investment|foreign investors]], with the expectation that it would be replaced by a [[Futures exchange|futures]]-and-[[Option (finance)|option]]s exchange.<ref name="Balfour">Alexander Balfour. February 1995. "Bogged-down in Bombay." ''Euromoney''. Issue 310. p. 96.</ref> Such an exchange was not established and ''badla'' were legalized again in 1996 (with a carry-forward limit of [[Rupee|Rs]] 200&nbsp;million per broker) and banned again on 2 July 2001, following the introduction of futures contracts in 2000.<ref name="Rajeshwari">C. Raja Rajeshwari. 28 January 2004. "[http://www.thehindubusinessline.com/bl10/stories/2004012800260600.htm From badla to derivatives]." ''The Hindu Business Line''.</ref><ref name="Thomas">Susan Thomas. 29 June 2001. "[http://www.igidr.ac.in/~susant/MEDIA/ban-on-badla-2.html Ban on badla, take 2] {{Webarchive|url=https://web.archive.org/web/20061125014139/http://www.igidr.ac.in/~susant/MEDIA/ban-on-badla-2.html |date=25 November 2006 }}." ''Economic Times''.</ref><br />
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==Procedure==<br />
''Badla'' trading involved [[trade|buying]] [[stock]]s with [[Debt|borrowed money]] with the [[stock exchange]] acting as an [[Financial intermediary|intermediary]] at an [[interest rate]] determined by the [[demand]] for the underlying stock and a [[Maturity (finance)|maturity]] not greater than 70 days. Like a traditional [[futures contract]], ''badla'' is a form of [[Leverage (finance)|leverage]]; unlike futures, the broker—not the buyer or seller—is responsible for the maintenance of the [[Mark-to-market|marked-to-market margin]].<ref name="Venkatesh">B. Venkatesh. 2001. "[http://www.hinduonnet.com/businessline/iw/2001/05/06/stories/0706g151.htm Badla versus futures]." ''The Hindu Business Line''.</ref><br />
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===Example===<br />
The mechanism of badla finance can be explained with the following example:<br />
Suppose A wants to buy shares of a company but does not have enough money now. If A values the shares more than their current price, A can do a badla transaction. Suppose there is a badla financier B who has enough money to purchase the shares, so on A's request, B purchases the shares and gives the money to his broker. The broker gives the money to exchange and the shares are transferred to B. But the exchange keeps the shares with itself on behalf of B. Now, say one month later, when A has enough money, he gives this money to B and takes the shares. The money that A gives to B is slightly higher than the total value of the shares. This difference between the two values is the interest as badla finance is treated as a loan from B to A. The rate of interest is decided by the exchange and it changes from time to time.<br />
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==References==<br />
{{reflist|30em}}<br />
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[[Category:Economic history of India]]<br />
[[Category:Bombay Stock Exchange]]<br />
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