- 11 Jan 2024
- ICICIdirect
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SEBI'S LATEST CIRCULAR CONFIRMS: SHORT SELLING IS ALLOWED WITH THE EXCEPTION OF NAKED SHORT-SELLING
The Securities Exchange Board of India, last week, announced that investors across all categories will now be allowed to short-sell. What it has denied is naked short-selling.
Naked short selling refers to the practice of selling a stock or securities, without actually owning or borrowing the underlying asset.
In a conventional short sale, an investor borrows the asset from a broker or another party and sells it with the expectation that the price will decline. The investor later buys back the asset at a lower price, returns it to the lender, and profits from the difference.
In naked short selling, however, the seller does not borrow or own the asset before selling it. Instead, they sell the asset based on the assumption that they will be able to acquire it at a lower price before the transaction settles.
Key Highlights from the circular for investors
Naked short selling shall not be permitted in the Indian securities market. Accordingly, all investors would be required to mandatorily honor their obligation of delivering the securities at the time of settlement.
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 fulfil their obligations on a gross basis. The custodians, however, would continue to settle their deliveries on a net basis with the stock exchanges.
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.