The Securities & Exchange Board of India (Sebi) has decided to allow both retail and institutional investors to short sell in the equities market. However, it has not allowed naked short-selling and all investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement.
Sebi will soon announce the date of implementation of the decision. The regulator has also decided to put in place a full-fledged securities lending & borrowing (SLB) scheme for market participants in order to provide a mechanism for borrowing securities and enable settlement of securities sold short.
In a circular issued on Thursday, Sebi said, ?Short-selling shall be defined as selling a stock which the seller does not own at the time of trade.? However, the regulator said that no institutional investor would be allowed day trading, i.e., squaring off their transactions 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,? the regulator said.
Sebi said that securities traded in the futures & options segment would be eligible for short-selling. ?Sebi may review the list of stocks that are eligible for short-selling transactions from time to time,? the regulator stated.
Institutional investors would be required to disclose upfront the short sale at the time of order placement. However, retail investors would be permitted to make a similar disclosure by the end of trading hours on the transaction day, the circular said.
The stock exchanges will put in place a full-fledged SLB scheme within the overall framework of the Securities Lending Scheme, 1997. The SLBs will take place on an automated, screen-based, order-matching platform to be provided by approved intermediaries. The platform will be independent of the other trading platform, the circular said.