The Hindu Business Line : SEBI willing to review share margin requirement system

Mumbai, Feb. 5 SEBI is willing to review share margin requirement system, said Dr T.C. Nair, whole-time member, Securities Exchange Board of India (SEBI).

This statement comes after the feedback that SEBI has been receiving on margin requirements in the stock market. Market problems had attributed the market fall of January 21-22 in part to margin problems.

Receiving feedback

However, “looking at it (margin requirements) does not mean we will change the system or policy,” added Dr Nair. “The capital market regulator is also receiving feedback from market participants on institutional short selling and will study all these suggestions,” Dr Nair added.

Intermediaries are keen on longer tenures of stock lending and borrowing contracts, and on inclusion of more stocks for short selling. “We will review the tenure of contracts, and inclusion of more stocks as well.

But, that will be based on the initial experience (of short selling),” said Dr Nair. Initially contracts with a tenure of seven trading days would be introduced, and short selling will be permitted in stocks trading in the derivatives segment.

Clarifications

Stock exchanges were expected to start institutional short selling on February 1, 2008; however, the implementation has been delayed as the Central Board of Direct Taxation (CBDT) has yet to come out with clarifications on the tax treatment for these contracts.

“Apart from the stocks that are currently in derivatives segment, any new additions will automatically be available for short selling,” said Dr Nair.

“The success of this mechanism is dependant upon participation of long-term large scale investors in securities lending. We are awaiting clarifications by the CBDT regarding important issues regarding taxation and tax exemptions,” said Dr Nair in his inaugural speech on short selling and securities lending and borrowing, at a conference organised by Dun & Bradstreet in association with Deutsche Bank and Reliance Mutual Fund.

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