SEBI, India’s market regulator, has introduced new rules on short selling. Investors from all categories can now engage in short selling, but the practice of “naked” short selling, where they sell stocks they don’t own, is not allowed. SEBI clarified that all stocks traded in the futures and options (F&O) segment are eligible for short selling.
The regulator emphasized that investors must fulfill their obligation to deliver securities at the time of settlement. Institutional investors are not permitted to engage in day trading, and short selling must be confirmed upfront. SEBI may review the list of eligible stocks for short selling periodically. The move follows a Supreme Court request related to allegations against the Adani Group.
SEBI also plans to introduce a securities lending and borrowing scheme alongside short selling by institutional investors. The new rules aim to prevent market manipulation and enhance transparency, but some concerns have been raised about their potential impact on market efficiency, particularly in smaller stocks. Monitoring the impact and making data-driven adjustments will be crucial for achieving a balance between stability and dynamism in the market.
In conclusion, SEBI’s recent regulatory changes regarding short selling in the Indian stock market aim to strike a balance between facilitating trading opportunities and safeguarding against potential market manipulation. Allowing investors across categories to engage in short selling while prohibiting “naked” short selling reflects an effort to enhance transparency and ensure fair practices. The emphasis on institutional investors confirming short sales upfront and the introduction of a securities lending and borrowing scheme demonstrate SEBI’s commitment to preventing misuse and protecting retail investors. However, the potential impact on market efficiency, particularly in smaller stocks, raises concerns, emphasizing the need for careful monitoring and periodic adjustments to maintain a healthy equilibrium in the dynamic financial landscape.
