The Indian stock market is currently only for people with deep pockets and money to play around with; the resultant volatility in the markets is going to throw people out of the system, said Mr Deven Choksey, Managing Director of KR Choskey Share & Securities Pvt Ltd.

It is a place of unequals because of the current system of cash-based settlement in the F&O segment, said Mr Choksey who – along with a handful of other old time brokers in the city – is a strong advocate of delivery-based settlement in derivatives trade.

This cash-based settlement system encourages only short term traders and not long-term investors, he said: “We cannot let someone from offshore (read FIIs) come in and swing the market which way they like and dictate the market. If these people are allowed to take a country view and operate the market without investments, they will kill the investment climate. Without delivery settlement they are taking the market up one day and down another day.”

Traders are refusing to take long term positions, he said: “Why should we as a country allow people who only want to trade short term? We need long term capital. The entire fabric of the market is getting spoilt.”

derivatives

Of course BSE has now implemented delivery-backed derivatives, but that stock exchange hardly has a sizeable derivatives market, he pointed out.

“If you trade even when you don't have to settle by delivery, then it allows an easy flight out,” he says. “Now we have investors coming to our market. Daily, the settlement is on cash basis. Whom is the market for? It is unfair that the size of someone's balance sheet decides which way the market will swing. Our guys don't have the same advantages. Mutual funds have dozens of restrictions (and, thank goodness for that). Insurance companies are long term players so they are not in the same game.”

The Indian stock market needs a sustainable investment climate. Currently, 95-98 per cent of the trades are in the non-delivery segment. Which market in the world operates with this kind of ratio, asks Mr Choksey. And it has worsened, because even till last year the delivery ratio was 30 per cent.

Delivery-based trade

Delivery-based settlement along with lending and borrowing of shares will bring balance to the markets, he says: “No market in the western world is operating without delivery settlement. And we should have automated lending and borrowing of both shares and funds. Currently we have ALBM only for shares, that too for the cash market.”

The other requirement is a mechanism for market making, because only 100 or so stocks of the 6000-plus listed stocks are traded with any liquidity. However these market makers should be of a commensurate size. “There is no point in having a market maker of net worth of Rs 1 crore appointed to create a market for a scrip of market cap of Rs 1,000 crore,” he said.

The broking industry also needs to be strengthened. There are stringent norms for banking and any Tom, Dick and Harry cannot become a banker. Similarly something must be done to strengthen intermediaries. “We have people offering trade at one paisa and getting away without being accountable for trade,” said Mr Choksey. Research and advice are not paid for in India and therefore there is no accountability for what is given free. “In many other markets of the world there are Registered Independent advisors who are certified advisors and are allowed to sell advice. They may not be brokers,” he said.

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