The Hindu Business Line : Banks, PDs allowed to short-sell G-secs

The Reserve Bank of India has allowed banks and primary dealers to short-sell Government securities. In a circular issued on Tuesday the RBI said that banks and primary dealers may undertake outright sale of Government securities that they do not own, provided the G-Secs are covered by outright purchase from the secondary market on the same trading day.

Intra-day short sale transactions and covering of a short position should be carried out only on the Negotiated Dealing System-Order Matching (NDS-OM) platform, RBIsaid.

As per the RBI guidelines, the short position should not be left uncovered at the end of the day. If a short position is not covered during the trading day, it would be treated as an instance of `SGL bouncing' and would be liable to disciplinary action.

The short position should not exceed 0.25 per cent of the outstanding stock of a security. Information regarding the outstanding stock of each security would be available on the RBI Web site to facilitate monitoring.

Gilt Accounts Holders (GAHs) under CSGL facility are not permitted to undertake intra-day short selling. Entities providing CSGL facility should ensure that no short-sale is undertaken by the GAHs.

Bank and primary dealers can undertake short-selling transactions only after their respective boards formulate a policy. This policy should include risk limits on short positions, the aggregate nominal short sale limit (in terms of face value) across all eligible securities and control systems to ensure regulatory and internal guidelines are met. Short selling activity should be reported to the top management and RBI and there must be procedures to deal with violations.

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