Market regulator Sebi reiterates the framework for short selling in markets
The Securities and Exchange Board of India (Sebi) on Friday amended its framework for short selling from a circular first issued in December 2007.
Market and regulatory experts said that with the update, the regulator has reiterated its framework and added the 'unintentionally missed points'.
In the new circular, it has once again introduced prior disclosure by institutional investors when they place short sale transactions. Further, retail investors would be permitted to make a similar disclosure before the close of trading hours on the transaction day.
These standards were already in force through a circular from the market regulator on 20 December 2007 on the broader framework for short selling. However, the master circular dated October 16, 2023 was missing comments on prior disclosures by institutional investors.
A master circular is a compilation of all other existing circulars from the relevant department.
As per the regulations, brokers are required to collect the data of scrip-wise short sell positions and upload it to the stock exchanges before the next day's trading. The consolidated information is distributed weekly for the information of the public.
These provisions were already in place through the 2007 circular.
Sebi's regulations on short selling came into focus during the Adani-Hindenburg investigations, with the market regulator submitting to the Supreme Court that short selling was regulated through the 2007 circular.
Sebi had argued that “short selling is a desirable and essential feature to provide liquidity and aid price correction in overvalued stocks and therefore short selling is recognized as a legitimate investment activity by the securities market regulators in most countries”.
The apex court had observed: “We have recorded the statement of the Advocate General before this Court that measures to regulate short selling will be considered by the Government of India and Sebi.”
First print: January 5, 2024 | 8:42 PM IST