Short-selling is SEBI’s Christmas gift to investors

PFW Bureau / Dec 21

Securities and Exchange Board of India (SEBI) has given a Merry Christmas gift to the retail investors. The regulator has allowed the retail as well as institutional investors to short sell in the equity market. SEBI will shortly announce the date of the implementation of the circular.

SEBI has taken a precautionary measure by not allowing naked short-selling. And, all the investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement.

SEBI said that short selling means selling a stock which the seller does not own at the time of trading. No institutional investor shall be allowed to do day trading – square off their transaction intra-day.

"The stock exchanges shall frame necessary uniform deterrent provisions and take appropriate action against the brokers for failure to deliver securities at the time of settlement which shall act as a sufficient deterrent against failure to deliver", SEBI said.

The securities traded in Futures and Options (F&O) segment shall be eligible for short-selling. "Sebi may review the list of stocks that are eligible for short selling transactions from time to time", SEBI said. 

The retail investors would be permitted to make a similar disclosure by the end of the trading hours on the transaction day. Whereas, the institutional investors shall disclose upfront about the short sale at the time of placement of order.

According to the market experts, the decision of SEBI to allow short selling  is likely to impact the market. It may bring depth in the market and help better price-discovery. But, at the same time, it may lead to speculation trading in the market. 

The regulator has also decided to put in place a full-fledged SLBs scheme for market participants in order to provide a mechanism for borrowing of securities to enable settlement of securities sold-short.

Sebi has issued a broad framework for the SLB. The stock exchanges shall put in place a full-fledged SLB scheme within the overall framework of Securities Lending Scheme, 1997.

The SLBs shall take place on an automated, screen based, order-matching platform which will be provided by the Approved Intermediaries (IA). The platform shall be independent of the other trading platform, SEBI said.

All categories of investors including retail and institutional will be permitted to borrow and lend securities. "To begin with, the securities traded in F&O segment shall be eligible for lending and borrowing under the scheme", SEBI added.