SEBI opens door to short selling for all investors, F&O stocks now in play

8 Jan 2024 , 09:46 AM

Investors in all categories will be able to engage in short sales, but naked short sales will not be allowed, according to a statement released by the Securities and Exchange Board of India on Friday.

Moreover, short selling is permitted for any stock that trades in the futures and options market.

As per the regulator’s framework, ‘all investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement and naked short-selling shall not be permitted in the Indian securities market.’

Selling a stock that the seller does not possess at the time of sale is known as ‘short selling.’

Furthermore, day trading will not be permitted for institutional investors. This implies that institutional investors would receive a gross profit on all transactions at the custodian level. Nonetheless, the custodians will keep settling their deliveries with the stock exchanges on a net basis.

Although SEBI may occasionally review the list of equities that are eligible for short selling transactions, it stated that securities traded in the F&O segment will be eligible for short selling.

Institutional investors are obligated by convention to reveal if a transaction is a short sale at the time of order placement. Retail investors, however, will be able to submit a comparable statement by the close of trading on the day of the transaction, according to SEBI.

In the event that brokers fail to deliver securities at the time of settlement, the market regulator has requested that stock exchanges create the requisite uniform deterrent provisions and take appropriate action against them. Additionally, a Securities Lending and Borrowing (SLB) mechanism will be implemented to give short sellers the boost they need.

As to SEBI’s statement, the launch of an institutional investor short selling program will coincide with the launching of a comprehensive securities lending and borrowing scheme.

Before the next trading day’s trade opens, all brokers are required to gather information on scrip-by-scrip short-sell positions and upload it to the stock exchanges. With SEBI’s agreement, the frequency of such disclosures may occasionally be reviewed.

The market authority published a master circular outlining the guidelines for stock exchanges and clearing organizations regarding short selling in October of last year.

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