In an effort to make available finance and improve liquidity in stock markets, the Securities and Exchange Board of India will introduce margin trading and securities lending scheme in the bourses from February 1, 2004, even as it expressed concern over sharp rise in sensitive index.

The corporate broking entities would be able to directly lend funds to investors to finance their trading in cash market subject to certain regulations while any person holding securities (shares) would be able to lend them in market through stock exchange mechanism.

"The Sebi board cleared the proposals on Tuesday at a meeting in Kolkata and we will come out with detailed notifications soon. We hope to commence working on the scheme from Febraury 1," Sebi chairman G N Bajpai told reporters in Mumbai on Wednesday.

Only Indian corporate brokers with a minimum networth of Rs 3 crore (Rs 30 million) would be permitted to run margin trading, he added.

This is a step for development of the market, Bajpai said, adding the proposed margins trading and lending scheme did not have any resemblance with previous badla system as new mechanism would have strict disclosure standards.

The new schemes would be reviewed after six months, he said.

On the current status of the market, Sebi chief said the regulator had been keeping a close watch on the market and was concerned over the sharp rise in index movement.

"Whenever we come across unusual movement in the market, we will take prompt remedial measures and punish those found guilty of breaching regulations, Bajpai added.