SEBI allows institutional investors to short sell

[India]

On December 20, 2007, Securities and Exchange Board of India, SEBI, has passed circular permitting institutional investors to short sell shares in Indian securities market. Previously, only retail investors were allowed to short sell. SEBI has also planned a securities lending and borrowing (SLB) scheme to provide platform for settlement of short sold securities.

“Short selling” is selling a stock which the seller does not own at the time of selling. If the view on a particular security is bearish (price is expected to go down), one can short sell now and buy later. The time for buying back securities short sold is till the end of week. The short seller has obligations to buy back the security.

According to SEBI guidelines naked short selling is not permitted in the Indian securities market. All investors have to mandatorily honour their obligation of delivering the securities at the time of settlement.

SEBI has also mentioned that institutional investor will not be allowed to do day trading. Also, the institutional investors will be required to disclose upfront at the time of placement of order if short selling.

It has also announced that securities traded in Futures and Options (F&O) segment shall be eligible for short selling.

Source: The SEBI circular is available on the website.