With refrence to recent SEBI circular regarding physical settlement of stocks.
Apart from raising the funds required to take single trade, I don’t think there is much setback for honest and eligible traders. I think sebi is finally cleaning the system.
If you had traded previously (a few years back or even till now) you would know some stocks were used as a betting and gambling tool, because there would utterly be no rhyme and reason for their movement. The steps taken by sebi will reduce the power of money on stock movements.
They are working on SLB (Stock lending and borrowing) scheme which I think will ultimately allow even those traders who don’t own stocks to hold FnO positions until expiry and borrow from lenders to settle their obligation. I think some kind of mechanism like this will evolve. I haven’t read anything about this in particular but putting together different information gained over time, I see this becoming a possibility in future.
I know people don’t actually read the circular themselves but just go about worrying, reading different opinions on websites/blogs/forums. Either they are new to the market or just casual traders who are in it just for a fast buck.
But if you read and understand the circular, I see it only as means to regularize the market. Remove illegal money and illegal trades. This should reduce volatility caused due to power of this money.
Physical settlement will actually benefit the companies also and benefit the economy overall because now people will trade to gain hold of dividend stocks at lesser price.
It also means that those stocks which are really not that much worth, where people trade only for making profit (take other people’s money) will get removed from the system and provide opportunity to other more worthy companies (stocks) to take part in this opportunity.
You see, when a stock price is moved only for the heck of it, to make profit, only two people get the benefit, the guy who had more money to move the stock price and the broker. No pun intended for the broker though.
In this system no value is created in the economy. Only the money shifts from one person to another person. In the long run, this kind of system will/may collapse the market/stock. As bonafide buyers will stay away from those stocks and as such stock will keep plummeting under the influence of money power, even though there may be chances for the company to rebound but can’t because people are not buying it’s stocks out of fear. And again, this fear was created because money power stole their hard earned money.
I am not any financial expert but I can remember things over time. What happened, how it happened and so putting it all together this is the picture I am getting in my mind. Please don’t bother if this all looks boring to you. Especially, if you have no interest in value creation, this post may look like boring. But in the long run this will be beneficial and healthy for everyone. India is growing, we too should grow up with it rather than blankly criticizing whatever SEBI does.
Can you @nithin please comment on this please. Also, regarding SLB and how it is going to work in the future when it may be implemented. I really would like to know your opinion on what I am thinking (my interpretation of this circular). How much right or wrong I am? Thank You 