Sebi looking at proposal to ease curbs on short-selling in stocks

Mumbai: The Securities and Exchange Board of India (Sebi) is considering a plan to ease restrictions on short-selling – a trading strategy betting on a decline in prices of an asset– on most stocks. In a recent meeting of the regulator-appointed secondary market advisory committee (SMAC), the proposal was discussed after broking industry officials highlighted that the market watchdog’s January 2024 proposal to bar short-selling in stocks that are not in the future and options segment had caused uncertainty.

The new recommendations, if implemented, could allow short-selling in all stocks, barring those in the trade-to-trade, or T2T, segment, said sources with direct knowledge of the matter. Sebi officials, during the discussions, agreed to give the plan another thought, they said. An email to Sebi went unanswered till press time.

Sources said a ban on short-selling in non-F&O stocks could shrink liquidity further after trading volumes have already taken a hit following the recent regulatory restrictions and weakness in the market.

Short-selling means selling a stock that the seller does not own at the time of trade. Short-sold shares should be bought back on the same trading day and cannot be carried forward or held overnight.

Brokers have recently been seeking greater clarity on the implementation of Sebi’s January 2024 rules. “If the ban on short selling in non-F&O stocks is enforced strictly, it could lead to a further decline in cash market volumes,” said the CEO of top broking firm.

Motilal Oswal Financial Services was the first among the larger firms to restrict short-selling in non-F&O stocks from Monday following Sebi’s January 2024 circular.”We would be restricting the non-F&O stocks for short-selling in intraday products. Request you to note the same before placing an order in the intraday product as 1st trade of buying needs to be done only,” the broking firm said in a message to its clients.

Motilal Oswal did not respond to an email query.

According to the January 2024 circular, naked short-selling is not permitted in the Indian securities market, and all investors must mandatorily fulfil their obligation to deliver securities at the time of settlement. Short-selling is allowed only in F&O stocks.

The rules governing short-selling and securities borrowing and lending mechanisms were originally framed in October 2007.