Badla was an indigenous carry-forward system invented on the Bombay Stock Exchange as a solution to the perpetual lack of liquidity in the secondary market. Badla were banned by the SEBI in 1993 (effective March 1994), amid complaints from foreign investors, with the expectation that it would be replaced by a futures & options exchange. Such an exchange was not established and badla were legalized again in 1996 (with a carry-forward limit of Rs 20 crore per broker) and banned again on July 2, 2001, following the introduction of futures contracts in 2000.
Badla involves carrying forward of a transaction from one settlement period to the next without effecting delivery or paymentt. The carry-forward is done at the making up price, which is usually the closing price of the last day of settlement.
A badla transaction attracts the following payments / charges :
(a) ‘margin money’ specified by the stock exchange board; and
(b) contango or badla charges (interest charges) determined on the basis of demand and supply forces.