How the Badla system works?

On every Saturday, a CF system session is held at the BSE. The scrip’s in which there are outstanding positions are listed along with the quantities outstanding. The CF rates are determined depending on the demand and supply of money. There is more demand for funds when the market is over bought, and consequently the CF rates tend to be high.

However, when the market is oversold the CF rates are low or even reverse i.e. there is a demand for stocks and the person who is ready to lend stocks gets a return for the same. The scrip that have been put in the Carry Forward list are all 'A' group scrip, which have a good dividend paying record, high liquidity and are actively traded. The scrip is not specified in advance, as it then gets difficult to get maximum return.

The Trade Guarantee Fund of BSE guarantees all transactions; hence, there is virtually no risk to the Badla financier except for broker defaults. Even if the broker through whom you have invested money in Badla financing defaults, the title of the shares would remain with you and the shares would be lying with the "Clearing house". However, the risk of volatility of the scrip will have to be borne by the investor.