SEBI permits short selling in stocks

Securities traded in F&O segment will be eligible

Settlement cycle for SLB transactions will be on T+1 basis

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MUMBAI: The Securities and Exchange Board of India (SEBI) has decided to permit short selling by institutional investors. Until now, only retail investors were allowed to short sell.

Further SEBI has also been decided to put in place a full-fledged Securities Lending and Borrowing (SLB) scheme for all market participants in the Indian securities market “in order to provide a mechanism for borrowing of securities to enable settlement of securities sold short.”

The introduction of a full-ledged SLB scheme would be simultaneous with the introduction of short selling by institutional investors.

Short selling is defined as an act of selling a stock which the seller does not own at the time of trade. The SEBI asked all Stock Exchanges and the depositories — National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL) — to put necessary systems in place to operationalise the mechanisms for short selling and SLB.

The securities traded in the Futures & Options (F&O) segment would also be eligible for short selling. Further, SEBI may review the list of stocks that are eligible for short selling transactions from time to time.

Institutional investors are asked to disclose upfront at the time of placement of order, whether the transaction is a short sale. However, retail investors would be permitted to make a similar disclosure by the end of the trading hours on the transaction day.

SEBI also stated that the brokers are mandated to collect the details on scrip-wise short sell positions, collate the data and upload it to the stock exchanges before the commencement of trading on the following trading day. “The stock exchanges then consolidate such information and disseminate the same on their websites for the information of the public on a weekly basis.”

Stock lending

SEBI stated that the tenure of lending and borrowing would be fixed as standadised contracts and “to begin with contracts with tenure of 7 trading days may be introduced.” While the settlement cycle for SLB transactions would be on T+1 basis, the settlement of lending and borrowing transactions would be independent of normal market settlement.

Position limits

On position limits, the SEBI stated that: the market-wide position limits for SLB transactions shall be 10 per cent of the free-float capital of the company in terms of number of shares; No clearing member shall have open of more than 10 per cent of the market-wide position limits or Rs 50 crore (base value), whichever is lower; For a Foreign Institutional Investor (FII) or Mutual Fund (MF), the position limits shall be the same as of a clearing member; and the client level position limits shall not be more than one per cent of the market-wide position limits.

SEBI further stated that the SLB would be operated through clearing corporation or clearing house of stock exchanges having nation-wide terminals, which will be registered as approved intermediaries. The date of implementation of this scheme will be announced in due course.