The Hindu Business Line : Marketmen welcome SEBI move on short-selling

Mumbai, Dec. 20 Market players welcomed the Securities Exchange Board of India’s decision to allow all classes of investors to indulge in ‘short sales’. The SEBI move is seen as a big shift in the prospect of securities market.

“This is a positive move by the SEBI as this will ensure less volatility in stocks as there will be more shares and increasing players in the market,” said Mr Chandramohan Dawar, Director, Single Window Securities Ltd.

Good signal

“It seems that the gap between retail and institutional investors is reducing and this is a good signal for the market,” he added.

Brokers and dealers are confident about the settlement mechanisms being fool-proof, although the new structure for borrowing and lending is still not put to test.

“When a stock will be borrowed, certain margin will be taken; also there will be a list provided by the authority of some securities available, so finally broker will be responsible as he/she is the intermediary between the seller and the stock exchange,” said a broker with a Mumbai-based brokerage firm.

Lending Cost

“The retail investor can have settlement through delivery of shares, lending or borrowing or ultimately through auction,” said a Mumbai-based broker. The lending cost for such transactions (borrowing and lending) does not seem to be a big issue for them as they think it is going to be minimal.

“The lending cost might be structured in the re-purchase contract and that too as a percentage of stock price rather than a straight cash deal. The latter arrangement does not seem very convenient for an investor who invariably would not pay cash when he is going for short selling,” said Mr Dawar.

“People will only go for short selling if they already have an approved lender window,” said Mr R. Balagopal, Vice-President, Fedex Securities Ltd.

“This process does not seem to be involving any risk for the broker also,” he added.

Investor participation

Ultimately, all market participants see it resulting in greater investor participation. The market participants are still not very familiar with the proposed process but they all hope that it will not be long before the framework now proposed is actually put into practice.

The SEBI has 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.