The Securities and Exchange Board of India (SEBI) announced on Friday that all investors, across various categories, will now be permitted to engage in short-selling, with the inclusion of stocks in the futures and options (F&O) segment. However, the regulatory framework explicitly prohibits naked short-selling in the Indian securities market.
Naked short-selling, which involves selling a stock that the seller does not own at the time of the trade, is deemed impermissible under SEBI’s guidelines. The regulator emphasized that investors must fulfill their obligation to deliver the securities during the settlement process.
In a notable move, institutional investors will not be allowed to engage in day trading. This implies that transactions by institutional investors will be grossed at the custodians’ level, with the custodians continuing to settle deliveries on a net basis with stock exchanges.
While all stocks trading in the F&O segment are eligible for short-selling, SEBI reserves the right to periodically review the list of eligible stocks for short-selling transactions.
Under the new norms, institutional investors are required to disclose upfront, at the time of placing an order, whether the transaction is a short sale. In contrast, retail investors are permitted to make a similar disclosure by the end of the trading day.
SEBI has instructed stock exchanges to develop uniform deterrent provisions and take appropriate action against brokers failing to deliver securities at the settlement time. Additionally, a Securities Lending and Borrowing (SLB) scheme will be established concurrently to facilitate short-selling activities.
Brokers are mandated to collect details on scrip-wise short-sell positions and upload them to stock exchanges before the start of trading on the following day. The frequency of such disclosures may be subject to review with SEBI’s approval.
The regulatory changes come after SEBI’s issuance of a master circular in October of the previous year, outlining provisions on short-selling for stock exchanges and clearing corporations.
