14.10 SEBI - Broad framework for short selling

Hanumant Dhokle

Short selling shall be defined as selling a stock which the seller does not own at the time of trade.

  1. All classes of investors, viz. retail and institutional investors shall be permitted to short sell.
  2. Naked short selling shall not be permitted in the Indian securities market and accordingly, all investors would be required to compulsorily honour their obligation of delivering the securities at the time of settlement.
  3. No institutional investor shall be allowed to do day trading i.e., square-off their transactions intraday.
  4. 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.
  5. The stock exchanges shall frame necessary uniform deterrent provisions and take appropriate action against the brokers for failure to deliver securities at the time of settlement which shall act as a sufficient deterrent against failure to deliver.
  6. The securities traded in 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.
  7. 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.
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