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Farewell to the badla old days?

Speculators may be the stars in a bull market but in a falling one they are the villains.

After a precipitous market fall in March led to a default on the Calcutta bourse and the arrest of a Bombay broker, Indian regulators decided to accelerate reform of the stock markets. Few are cheering. The Bombay Stock Exchange 30-share Sensex is down by one-fifth since early March and the crisis snuffed out trading volumes. Daily turnover of over Rs100 billion a day in early March shrank to about a quarter of that by June. Many fear worse is to come after the reforms are introduced.

Indian stock markets were a curious amalgam of a cash and futures markets. Speculators thrived on an antiquated settlement system and only one tenth of trades were actually settled. From July 2 the cash market will be separated from the futures. Trading in 414 of the most liquid stocks - of the 7,000 listed companies - that account for about 98% of turnover, will be settled every day as India's 23 stock exchanges move from a weekly settlement to T+5.

Many firms that made money arbitraging between exchanges will go of business.

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