The Securities and Exchange Board of India?s (Sebi) green light for shortselling to institutions and lending and borrowing of securities from April 21 has evinced a mixed response from market participants.
On one hand, there are players who reckon that this step will make Indian markets at par with other emerging markets, where short selling is already in place. However, there are others who feel that few clauses have to be rectified to make short-selling more efficient.
Anita Gandhi, head of institutional business at Arihant Capital Markets, said, ?It?s a good move by the regulator as it would provide a hedging tool for institutions. The FIIs always had this tool in other markets and local institutional investors such as banks and MFs will now be able to hedge their portfolio in uncertain markets. As far as the margins for institutions are concerned, they would increase some administrative work of brokers.? At the moment, the T+1 trading system is followed and therefore brokers will have to bear the margin payment for one day.
However, a section of the market is not happy with some clauses, especially the seven-day contract tenure. They believe that the time-frame is rather short and will prevent opportunities from getting exploited. This might not elicit participation from markets players.
They added that the period of borrowing should at least match with the settlement period of the futures markets.
According to Sebi notifications, securities traded in the F&O segment are eligible for stock lending and borrowing.
Currently, there are 224 scrips traded in the F&O segment on the NSE.
The head of research at a leading broking firm reckons that investors can go short in the derivatives markets at much lower cost. He feels there is no logic of going short in the cash market and pay higher margins. Then again, short-selling is allowed only on stocks in the F&O market. Institutions will not be able to go short on other stocks.
In December 2007, Sebi had proposed to introduce securities lending in India and also allowed institutional investors to short sell in the market.
It contemplated to put in place a fullfledged SLB plan within the overall framework of the Securities lending schemes, for giving the necessary impetus to short sell.
However, institutional short selling, which was to begin from February 1, was delayed as the Central Board of Direct Taxes could not clarify tax treatment to the contracts.
