SEBI permits short-selling across all categories, F&O stocks also eligible

The Securities Exchange Board of India (SEBI), on Friday, announced that investors across all categories will now be allowed for short-selling, however, denies permission for naked short-selling. The markets regulator further informed that all stocks that trade in the futures and options segment are eligible for short-selling.

Short selling refers to the practice of selling a stock that the seller does not currently own at the moment of the transaction.

“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,” SEBI said in its framework.

Moreover, institutional investors are prohibited from engaging in day trading. Consequently, all transactions for institutional investors will be aggregated at the custodians’ level. However, custodians will maintain the practice of settling their deliveries on a net basis with the stock exchanges.

Securities traded in the F&O segment will be permissible for short selling, with SEBI indicating that it may periodically reassess the roster of stocks eligible for such transactions.

According to the regulations, institutional investors must disclose whether a transaction is a short sale at the time of placing an order. Conversely, retail investors have the option to make a similar disclosure by the close of the trading day, as outlined by SEBI.

SEBI has instructed stock exchanges to establish consistent deterrent provisions and take appropriate action against brokers who fail to deliver securities during settlement. A Securities Lending and Borrowing (SLB) scheme will be implemented to encourage short selling.

The implementation of a comprehensive securities lending and borrowing scheme will coincide with the introduction of short selling by institutional investors, as per SEBI’s announcement.

All brokers are obligated to collect details on scrip-wise short-sell positions and upload them to stock exchanges before the commencement of trading on the subsequent trading day. The frequency of such disclosures may be subject to periodic review with SEBI’s approval.