SEBI might make short selling in stocks easier
What's the story
The Securities and Exchange Board of India (SEBI) is mulling a proposal to relax restrictions on short selling across most stocks.
The proposal was discussed in a meeting of the regulator-appointed Secondary Market Advisory Committee (SMAC).
This was done after officials from the broking industry raised concerns over SEBI's January 2024 directive, prohibiting short selling in non-Futures and Options (F&O) stocks.
The new recommendations, if approved, could allow short selling for all stocks except those in the trade-to-trade (T2T) segment.
Information
What is short selling?
Short selling is a trading strategy in which an investor earns profits by selling borrowed stocks, when the price of the share goes down. The investor then buys back the stocks at a cheaper price and finally returns them to the lender.
Market impact
Concerns over liquidity and market volumes
The broking industry fears a ban on short selling in non-F&O shares could further sap liquidity, especially after recent regulatory changes and a market downturn.
"If the ban on short selling in non-F&O stocks is enforced strictly, it could lead to a further decline in cash market volumes," said the CEO of a leading broking firm.
Motilal Oswal Financial Services was the first major firm to restrict short selling in non-F&O stocks after SEBI's 2024 circular.
Circular details
SEBI's January 2024 circular on short selling
SEBI's 2024 circular prohibited naked short selling in the Indian securities market and mandated all investors to fulfill their obligation to deliver securities at settlement time.
The provisions required institutional investors to disclose upfront whether a transaction is a short sale, while retail investors were permitted similar disclosure by end of trading hours on transaction day.
Brokers were also ordered to collect details on scrip-wise short sell positions and upload this data to stock exchanges before trading begins next day.