The Hindu Business Line : Short selling: Only a few takers so far

Mumbai, April 28 One week after the Stock Lending and Borrowing Scheme (SLBS) came into operation in the Indian markets, there is little to write home about.

Only three stocks figured in the first posting of weekly data on SLB trading on the NSE; while at the BSE till April 25, only Reliance and SBI figured on the list.

The first day of stock lending (April 21) saw just five trades under SLBS: in Reliance Industries, State Bank of India, and Reliance Natural Resources Ltd. On the second and third days, the trading was even less enthusiastic.

In the second half of the week there was no response from the 50 registered members (for SLB trading) on the exchanges.

Market players attributed the poor response to bad timing, to relatively higher margin requirements for SLB as compared to the future and options (F&O) segment of trade, and to the lack of operational readiness on the part of institutions.

“They shouldn’t have taken only F&O scrips for SLBS as there is already an option there to short sell those scrips. The margin requirement of 140 per cent is too high and it has been introduced when the markets have corrected a lot, reducing the chances to go short,” said Mr Bharat M. Shah, Head of Institutional Sales, Ventura Securities.

Margin requirement

Explaining the large margin requirement, Mr Shah said: “As compared to 140 per cent margin there was only 15-30 per cent margin required in F&O trading. Moreover, the margin would be double in SLBS, in case the borrower wanted a rollover of positions to the next week.

“It will take time for market players to adopt the new pattern of trading; ‘arithmetically’ they have to work it out, their in-house study is not ready,” said Ms Anita Gandhi, Head of Institutional Business at Arihant Capital Markets. Back offices of one of the large institutional players were yet not geared up to do SLB, she added

“With SLBS in the present form trading becomes very transparent,” she said. “From the large players’ perspective, borrowing details would reveal the trend in short selling which may take away some price movement advantages for them.”

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