SEBI allows short-selling by all investors; F&O stocks also eligible

The framework for short selling outlined in Annexure 3 of Chapter 1 of the Master Circular, dated October 16, 2023, defines short selling as the sale of a stock that the seller does not own at the time of trade. It permits all classes of investors, including retail and institutional, to engage in short selling, while prohibiting naked short selling to ensure mandatory delivery of securities at settlement. Institutional investors are barred from day trading, with transactions grossed at the custodians’ level, However, the custodians, would continue to settle their deliveries on a net basis with the stock exchange, while stock exchanges are tasked with framing deterrent provisions against brokers failing to deliver securities at settlement. Additionally, a scheme for Securities Lending and Borrowing (SLB) and securities traded in Future and Option (F&O) is to be implemented to facilitate short selling, aligning with the introduction of short selling by institutional investors who shall disclose about short sale transactions upfront, However, retail investors are permitted to make similar disclosure by the end of trading hours on the transaction day.

The brokers are mandated to collate the data of the details of scrip-wise short sell position and upload it to the stock exchange before the commencement of trading following that the stock exchange will put the same on their website for the information of the public on a weekly basis.

This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, along with other relevant regulations. Its purpose is to protect the interests of investors in securities and promote the development of, as well as regulate, the securities market, underscoring the importance of maintaining transparency and integrity within the financial ecosystem.[1]

[1] https://www.sebi.gov.in/legal/circulars/jan-2024/framework-for-short-selling_80448.html