The Securities and Exchange Board of India (SEBI) has issued a circular , dated January 05, 2024. This circular introduces a comprehensive framework for short selling in the Indian securities market.
Detailed Analysis:
1. Definition of Short Selling: SEBI’s circular defines “short selling” as the act of selling a stock that the seller does not own at the time of the trade. This establishes a foundational understanding for the subsequent regulations.
2. Permitted Investors and Classes: The circular permits all classes of investors, including retail and institutional investors, to engage in short selling activities.
3. Prohibition of Naked Short Selling: Naked short selling is strictly prohibited in the Indian securities market. All investors are mandated to honor their obligation of delivering securities during settlement.
4. Institutional Investor Regulations: Institutional investors are restricted from day trading, requiring them to fulfill their obligations on a gross basis. The custodians will settle deliveries on a net basis with the stock exchanges.
5. Provisions for Failure to Deliver: Stock exchanges are mandated to frame deterrent provisions against brokers failing to deliver securities during settlement, ensuring a robust mechanism to prevent failures.
6. Securities Lending and Borrowing Scheme: A Securities Lending and Borrowing (SLB) scheme will be implemented simultaneously with the introduction of short selling by institutional investors, providing impetus to short selling.7. Eligibility of Stocks for Short Selling: Stocks traded in the Futures and Options (F&O) segment are eligible for short selling. SEBI retains the authority to review the list of eligible stocks periodically.
8. Disclosure Requirements: Institutional investors must disclose upfront whether a transaction is a short sale. Retail investors can make a similar disclosure by the end of the trading day. Brokers are mandated to collect and disclose scrip-wise short sell positions to stock exchanges.
Link – https://www.sebi.gov.in/legal/circulars/jan-2024/framework-for-short-selling_80448.html
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