A NOTE ON THE PAKISTANI STOCK EXCHANGE: THE BADLA SYSTEM

Abstract

Badla also called Carry Over Transaction, means getting something in return. It is a mechanism that enables rollover of speculative positions from one settlement to another. It is a financing mechanism, practiced only in Pakistan and India. In this transaction the position of the investor is carried over or extended by a certain number of days, so that the investor can enter into the next trading period and thus maintain his position in the market, without taking delivery. In order to carry over his long position into the next trading cycle, a trader sells his position to a financier in the market in one settlement period, while concurrently buying it back in the next settlement period, at a higher rate, the difference being the interest element, or Badla charge. This is similar to a "REPO" (repurchase) as defined in the western markets.