Even stocks of good companies, whose scrips are in rolling settlement, cannot be bought or sold with ease. A significant fall in volumes for stocks in compulsory rolling settlements also led to the scrip values crashing. Rolling settlements work in developed markets as they have sufficient depth. Despite Indian markets having high volumes they lack depth because volumes are contributed by a few participants only. We do not have sufficiently large number of institutions that take contrarian views in the market.
Indian markets lack hedge funds and pension funds which can take a long term view of the markets.
Domestic financial institutions have stopped being a force to reckon with and small speculators and retail investors generally sail with the wind. This lack of depth is the major reason for volatility in the stock markets and rolling settlements are hardly a remedy for this. If the objective of introducing compulsory rolling settlements is to curb volatility and prevent price manipulation, then we are probably giving a wrong prescription. A better recourse would be to increase the number of financial institutions and players in the market. Encouraging banks, financial institutions and pension funds to invest in secondary markets could do this.