sebi mandate: SEBI allows short-selling by all investors; F&O stocks also eligible

MUMBAI – The Securities and Exchange Board of India on Friday said that investors across all categories will be allowed for short-selling, but naked short-selling will not be permitted.

Further, all stocks that trade in the futures and options segment are eligible for short-selling.

“Naked short-selling shall not be permitted in the Indian securities market and accordingly, all investors would be required to mandatorily honor their obligation of delivering the securities at the time of settlement,” the regulator said in its framework.

“Short selling” means selling a stock that the seller does not own at the time of trade.

Further, institutional investors will not be allowed to do day trading. This means all transactions would be grossed for institutional investors at the custodians’ level. The custodians, however, will continue to settle their deliveries on a net basis with the stock exchanges.

While securities traded in the F&O segment will be eligible for short selling, SEBI may review the list of stocks that are eligible for short selling transactions from time to time, it said.

Under the norms, institutional investors are required to disclose upfront at the time of placement of order whether the transaction is a short sale. However, retail investors would be permitted to make a similar disclosure by the end of the trading hours on the transaction day, SEBI said.The market regulator has asked stock exchanges to frame necessary uniform deterrent provisions and take appropriate action against brokers for failure to deliver securities at the time of settlement. A scheme for Securities Lending and Borrowing (SLB) will also be put in place to provide the necessary impetus to short sell.

The introduction of a full-fledged securities lending and borrowing scheme shall be simultaneous with the introduction of short selling by institutional investors, SEBI said.

It’s mandatory for all brokers to collect the details on scrip-wise short-sell positions and upload it to the stock exchanges before the start of trade on the following trading day. The frequency of such disclosures may be reviewed from time to time with the approval of SEBI.

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