SEBI Allows Short Selling From April 21st

Wednesday, March 19, 2008 | | |

ecurities and Exchange Board of India (Sebi) today said short selling and securities lending & borrowing will be operationalised from April 21.

A circular issued by the regulator today asked stock exchanges and depositories to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the decision.

Exchanges and depositories have been asked to update Sebi the status of the implementation of the provisions in the monthly development report.

Sebi had come out with a circular, on December 20, 2007, specifying the broad framework for short selling by institutional investors and a full-fledged securities lending and borrowing scheme for all market participants. A key feature of the framework had included a ban on naked short selling. This means all short-sellers would be required to honour their obligation of delivering securities at the time of settlement. They can honour the trades by borrowing securities through the proposed Securities Lending and Borrowing (SLB) scheme.

The other key feature was that no institutional investor will be allowed to do day trading - virtually prohibitng squaring off of their transactions intra-day. All shares in the futures and options (F&O) segment will be eligible for short selling. There are currently 200-odd stocks available in F&O on the National Stock Exchange. Sebi has said it will review the list of stocks that are eligible for short selling from time to time.

The SLB scheme, initially, will be for a tenure of seven days. There will also be fixed standardised contracts for the securities under SLB. The settlement cycle on SLB will be on T+1 basis. This means, investors are required to settle their transactions a day after their trades.

Securities lending and borrowing, which is considered a necessary ingredient for short selling, will be introduced simultaneously with short selling.

The capital markets regulator had said that to begin with the scheme will be operated through clearing corporations and stock exchange clearing houses that have nationwide terminals. At present, only BSE and NSE have nationwide terminals. The clearing agents will be required to be registered as approved intermediaries (AI) under the Securities Lending Scheme.

Stock lending and borrowing will also be allowed only in F&O stocks.

Sebi said borrowers and lenders should access the platform for lending/borrowing set up by the AIs through the clearing members (which include banks and custodians) who are authorised by AIs for the process.

To follow the Know Your Client (KYC) norms, Sebi said AIs should allot a unique ID to each client, which would be mapped to the Permanent Account Number of the respective clients.

"AIs shall put in place appropriate systematic safeguards to ensure that a client is not able to obtain multiple client IDs," the regulator had said.