Carry Forward & Badla Financers:

Carry forward transaction was practiced earlier in the stock market. In the
specified group, share settlement can be done in three ways;
(a) Delivery against payment
(b) Squaring up of the transaction (i.e. a purchase is offset by sales and vice-
versa)
(c) Carrying over the settlement to the next settlement period.
The first two types are simple but the third one is complex.
It can be explained by an example.
An investor Mr. A buys 1000 shares on Monday at the price of Rs.50 but on the
settlement day the settlement price became Rs. 60, Now Mr. A has three
options;
(d) Paying Rs. 50,000 and taking delivery of the Shares
(e) Selling and booking a profit (Rs. 60- Rs.50) X 1000 = Rs. 10,000
(f) Carrying the transaction forward if he believes that the price may go up
further.
 Carry Forward & Badla Financers:

In the third situation Mr. A postponing the payment as well as taking
delivery of the shares.
 Either he can enter into a contract with the carry forward broker or with
the badla financer. It depends upon the condition whether he has bought the
shares straight from the carry forward broker or not.
He has to get the difference between the consideration for which he has
bought and the mark-up price on the settlement day.
The mark-up price is determined by the stock exchanges i.e. the rate at
which the settlement has to be carried over.
The mark-up price resembles the closing market price of the previous day.
Forward seller or the Badla financer executes a resale contract with Mr. A
for a subsequent settlement at the new rate i.e. Rs. 60 plus the badla charges
( the interest factor) for the remaining amount to be settled (Rs.50,000).
Now, on the next settlement date if there is a further rise in the price of
the scrip, Mr. A again has the option either to chose the transaction or carry
forward the settlement to the next cycle.
 Carry Forward & Badla Financers:

In common word the carry-forward system is known as 'Badla', which means

something in return.
Badla is the charge, which the investor pays for carrying forward his position.
It is a hedge tool where an investor can take a position in a scrip without actually
taking delivery of the stock.
He can carry-forward his position on the payment of small margin.
If the investor wants to buy shares without paying the full consideration, he can
borrow money from a financier.
A financier can lend money to the investor to buy shares. This system is called "Badla
Financing".
Example: Suppose you buy 1000 shares of Infosys at Rs.3500, your cash outflow is Rs.
35 Lakh. Instead of paying cash, you can ask your broker to find a borrower to finance
your trade. This process of buying stocks with borrowed money is badla trading.
You will be charged an interest rate for borrowing, which will be determined by the
demand for that stock under badla trading.
Thus, higher the demand for infosys under badla trading higher will be the interest
rate.
You can keep your borrowing unpaid for a maximum of 90 days, after which you will
have to repay the badla financier through the exchange.
 Carry Forward & Badla Financers:

"Badla" in share trading means something in return. It is a system to carry-

forward. Badla is the charge, which the investor pays to carry forward his
position. Using the "Badla" tool or system, an investor can take a position in a
scrip without actually taking delivery of the stock. He can carry-forward his
position on the payment of small margin.
In the case of short-selling the charge is termed as 'undha badla'.
The "Badla" System or the Carry Forward (CF) System Serves 3 Needs in Share
Trading:
Quasi-hedging: If an investor feels that the price of a particular share is expected
to go up or come down, he or she can trade in the share without giving or taking
delivery of the stock and take advantage of the volatility of the stock.
Stock lending: If the investor wants to short sell without owning the underlying
security, he can easily borrow the shares for the broker or stock lender in return
of some charge.
Financing mechanism: If the investor wants to buy shares without paying the full
consideration, he can borrow money from a financier. A financier can lend
money to the investor to buy shares. This system is called "Vyaj Badla" or "Badla
Financing".
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

The basic purpose of ALBM would be to facilitate lending and

borrowing of securities as envisaged by the Stock Lending Scheme
1997 (SLS).
The ALBM however may also serve the purpose of deferral of
settlement by netting off obligations in ALBM with obligations in
the normal settlement.
This would result in carrying forward of the positions in the
normal settlement as in the case of Modified Carry Forward
System.
Automated Securities Lending and Borrowing services are a
cornerstone of Clear stream’s commitment to providing enhanced
settlement efficiency to its customers wherever their settlement
takes place.
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

ELIGIBILITY OF SCRIPS FOR ALBM:

Exchanges desirous of implementing ALBM will obtain SEBI approval for :
(i) The eligibility criteria for scrips to be included in the ALBM list
(ii) The process of choosing the scrips in the ALBM list
(iii) Disclosure and transparency provisions relating to the above

RISK CONTAINMENT:
1. Position Limits :
There will be a position limit per broker of Rs.40 crores in the aggregate
and Rs 5 crores per scrip. These limits will be determined on the basis of
gross position for the broker. These limits would apply only to trade
positions that are netted against ALBM positions, and would not apply to
stand-alone ALBM positions. However, the positions of pure securities
borrowers, who would be withdrawing the shares would be included in
the above mentioned overall position limit of Rs.40 crores in aggregate
and Rs.5 crores per scrip.
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

2. Short Sale Transactions:

A short seller receives charges in the ALBM when the lending price is below the
clearing price. Such charges shall be released to the short seller only if either the seller
actually owns the shares (and is using ALBM only for operational convenience or other
reasons) or the seller actually has funds by which he could have taken delivery of the
borrowed shares even if the ALBM transactions and trade transactions were not netted
off. In other cases, the excess of the clearing price over the lending price would be
credited to the Investor Protection Fund of the Exchange and shall not be released to
the short sellers.
3. Margins:
(a) Margining on Gross Basis
ALBM transactions, which are netted against trade positions, would be subjected to
margining on the basis of gross positions i.e. positions grossed across clients.
(b) ALBM Margin
The margin on all trade positions that are proposed to be netted against ALBM
transactions shall not be less than 10%. Further, in cases where the position so netted
by a member exceeds Rs 20 crores, the excess over Rs 20 crores shall attract a margin
which shall be at least 15% (5% above the 10% limit).
The minimum ALBM margins would start applying only at the end of the ALBM session,
as because of the very nature of the product it would be difficult to achieve the
segregation of twin track in the case of ALBM as in the case of carry forward system.
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

(c )Incremental ALBM Margin:

In case the gross position in ALBM in any exchange, in any scrip, exceeds
the parameters mentioned below, the additional margin shall be levied, in
addition to the ALBM margin, at a rate which is higher of the rates
determined as per the tables below :
Gross Rate of Margin Deferred Gross Rate of Margin
Outstanding Market Positions in ALBM
Position (Rs. In (in number of shares
crores) as % of total number
of shares paid up)
Exceeding 75 and up 5% Exceeding 3% going 5%
to 100 upto 4%
Exceeding 100 and 8% Exceeding 4% going 8%
up to 150 upto 5%
Exceeding 150 and 12% Exceeding 5% going 12%
up to 200 upto 6%
Exceeding 200 17% Exceeding 6% 17%
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

The positions referred to would exclude the positions

pertaining to the pure securities borrowers to the extent that
the collateral securities are kept with the clearing
house/corporation.
Once this margin is imposed by any Exchange having ALBM
or MCFS facility, the other Exchanges having ALBM or MCFS
will also follow the same from the start of next settlement.
(d) Collection of Margins:
These margins would be paid 100% in cash or fixed deposits
or government securities, or a combination of three.
Mark to Market Margin shall be collected separately from
daily/exposure margin as the purpose of the two margins is
different.
 AUTOMATED LENDING AND BORROWING MECHANISM (ALBM):

RISK MANAGEMENT OF PURE SECURITIES BORROWERS’ OBLIGATIONS TO

RETURN SECURITIES
1. Pure securities borrower means a borrower of securities who does not have
an offsetting long trade position.
2. Pure securities borrowers will have the option of depositing the collateral with
the clearing corporation. A pure securities borrower who does so would not be
subjected to any margin. However, if at the end of the settlement, the pure
securities borrower wishes to initiate a fresh transaction to continue the pure
borrowing of securities for one more week, mark to market margin would be
imposed at that stage.
The pure securities borrower who opt for withdrawing the shares from the
clearing house/clearing corporation shall be subject to margins such as mark to
market margin, exposure margin etc. in addition to ALBM margins mentioned in
Para 5 of this circular.
3. The Stock Exchanges would be allowed to introduce ALBM after satisfying the
conditions and modalities detailed above and after seeking formal approval from
SEBI in this regard.