January 6, 2024
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SEBI Opens Short-Selling to All Investors; Bans Naked Short-Selling
The SEBI announced on Friday a major update to trading regulations, opening the door for all categories of investors to engage in short-selling, while firmly prohibiting naked short-selling. According to the new framework, every stock currently listed in the futures and options (F&O) segment is now eligible for short-selling. SEBI clarified that naked short-selling, where the seller does not own the stock at the time of the trade, will not be allowed in India’s securities markets. This move requires investors to ensure the delivery of securities at settlement time.
Day-trading restrictions:
Institutional investors are now restricted from day trading, with SEBI mandating that all their transactions be grossed at the custodian level. Despite this, custodians will continue settling their deliveries on a net basis with stock exchanges.
SEBI’s regulations also include a provision for the periodic review of the list of stocks eligible for short-selling. Institutional investors are now obliged to disclose if a transaction is a short sale at the time of order placement. In contrast, retail investors have the flexibility to disclose this by the end of trading hours on the transaction day.
The market regulator has directed stock exchanges to implement uniform deterrent measures against brokers who fail to deliver securities at settlement. Additionally, SEBI is introducing a Securities Lending and Borrowing (SLB) scheme to bolster the short-selling market. This scheme, aimed at institutional investors, is set to launch concurrently with the new short-selling provisions
Moreover, brokers are now required to compile details of scrip-wise short-sell positions and report them to the stock exchanges before the next trading day begins. SEBI retains the authority to review the frequency of these disclosures.
This policy update follows SEBI’s issuance of a master circular in October of the previous year, outlining comprehensive provisions for short selling applicable to stock exchanges and clearing corporations.
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