Badla financing can be allowed in the rolling settlement system as well. In effect, it is just like margins trading which is done in most overseas markets. The system is based on a self-financing mechanism. It provides ample liquidity and keeps the consequential cost of the trades quite low. The system ensures that the market has deep pockets and absorbs volatility.
Critics say badla can be replaced with individual stock options and index futures.
There are serious doubts whether it is safer or whether our markets are ready for it. Abroad, there are separate exchanges for derivates. Liquidity is required even for the options and futures market, whether it involves money or shares. Equity holding patterns of Indian companies show a concentration of shares in the hands of promoters and institutions. Public holding is highly fragmented.