Contra risks best left to brokers

THE controversial practice known as contra trading has been under scrutiny ever since the penny stock crash of last October. Because of claims (as yet unproven) that contra was a contributory - or perhaps aggravating - factor during that sorry episode, there have been calls to either abolish or curb the practice

because allowing punters to buy stocks with no capital upfront is outdated, risky and encourages gambling.

The authorities last month proposed various new measures aimed at strengthening the local market. These include proposals to curb contra - a shortening of the settlement period to two days instead of three, and the payment of upfront collateral.

There's no doubt that contra is an archaic practice that adds risk and probably distorts prices. Taken to its logical extreme, one could argue that it should never have been allowed in the first place all those decades ago, back when settlement was five days after the transaction day, when commissions were one per cent and when brokers could extend the c…