The Hindu Business Line : SEBI allows short selling by institutional, retail investors

Renewed facility
SEBI banned short selling in the wake of the Ketan Parekh scam in 2001.
Date of implementation of new facility, SLB mechanism to be announced later.

Our Bureau

Mumbai, Dec. 20 The Securities and Exchange Board of India (SEBI) on Thursday allowed short selling of shares by all classes of investors, both institutional and retail. Short selling had been banned by the regulator in the wake of the Ketan Parekh scam in 2001.

Short selling refers to the sale of stocks which the seller does not own at the time of selling.

To provide for settlement of shares sold short, SEBI said it was also providing a mechanism of securities lending and borrowing (SLB) for all market participants.

The date of implementation for this facility as well as the SLB mechanism would be announced later, said SEBI.

Looking for balance

Market participants expressed their approval of the announcement, though they were not surprised, having been led to expect it by the close of 2007. Short selling would impart balance, depth and liquidity to the market, they said.

To begin with, the securities currently traded in the F&O segment shall be eligible for short selling, with SEBI reviewing from time to time, the eligibility list of stocks.

Naked short selling will, however, not be permitted. This means that investors would have to mandatorily honour their obligation of delivering the securities at the time of settlement, said SEBI.

The settlement cycle for SLB transactions will be on a T+1 basis (T denotes the duration for which the shares will be lent) with these settlements being independent of normal market settlement.

Disclosure norm

Institutional investors have to disclose upfront at the time of placement of an order whether their transaction is a short sale. Retail investors can make their disclosures by the end of the trading hours on the transaction day, said SEBI.

No institutional investor will be allowed to do ‘day trading’, said the regulator. In effect, they would be required to effect delivery of any scrip ‘short sold’ and also pay for the same scrip that may be bought during the day.

Stock exchanges must issue necessary guidelines and put in place systems to operationalise both short selling and SLB, said SEBI. Surveillance and risk containment measures would also have to be implemented.

Both the stock exchanges and depositories have to put in systems to distinguish the lending and borrowing transactions related to short selling from the normal market transactions in the demat system. They must communicate to SEBI the status of implementation of the provisions in the Monthly Development Report.

SLB operation

The SLB will be operated through clearing houses of stock exchanges with nation-wide terminals which will be registered as Approved Intermediaries.

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