On 5th January 2024, SEBI issued the latest circular on the framework for short-selling adding two new provisions where institutional investors now have to disclose upfront whenever they place a short-sell order and exchanges shall publish the information for the public every week.
Here’s a breakdown of what changes and what doesn’t.
What changes for retail traders?
Nothing at all. This circular mainly addresses the additional disclosures that institutions need to make when they wish to short-sell a stock.
What is short-selling and who can short-sell?
“Short selling” is selling a stock that the seller does not own at the time of trade.
As per SEBI, All classes of investors (retail and institutional investors) are permitted to short-sell.
How can one short-sell?
One can borrow the stock that one wishes to short using the Securities Lending and Borrowing(SLB) mechanism.
This circular is a step in the right direction where SEBI intends to introduce a full-fledged securities lending and borrowing scheme that shall be simultaneous with the introduction of short selling by institutional investors.
Naked short selling shall not be permitted
Naked short selling shall not be permitted in the Indian securities market and accordingly, all investors would be required to mandatorily honor their obligation of delivering the securities at the time of settlement.
Note: Naked short selling is already banned in not only Indian markets but also in most of the major markets like the US.
Institutional investors cannot do day trading
No institutional investor shall be allowed to do day trading i.e., square-off their transactions intra-day.
In other words, all transactions would be grossed for institutional investors at the custodians’ level and the institutions would be required to fulfill their obligations on a gross basis. The custodians, however, would continue to settle their deliveries on a net basis with the stock exchanges.
Note: this is the standard practice at present. so, there’s no change here
Nothing changes for stocks traded in the F&O segment
The securities traded in the F&O segment shall be eligible for short selling. SEBI may review the list of stocks that are eligible for short-selling transactions from time to time.
Upfront disclosure by institutional investors:
The institutional investors shall disclose upfront at the time of placement of order whether the transaction is a short sale.
However, retail investors would be permitted to make a similar disclosure by the end of the trading hours on the transaction day.
Note: This is the standard practice at present. So, there’s no change for retailers.
Brokers are to collect and upload the data to stock exchanges before 9 am on the next trading day:
The brokers shall be mandated to collect the details on scrip-wise short-sell positions, collate the data, and upload it to the stock exchanges before the commencement of trading on the following trading day.
Exchanges to upload the data every week:
The stock exchanges shall consolidate such information and upload the data of short-selling data of institutional and retail investors on their websites for the information of the public on a weekly basis.
You can check @mohitmehra’s detailed explanation of each clause here:
