Short-selling

Short-selling:  The Securities and Exchange Board of India (SEBI) is considering a major revamp of short-selling regulations, potentially allowing it for all stocks except those in the trade-to-trade (T2T) segment.

• About Short-selling: It allows investors to sell a stock without owning it, betting on a fall in stock prices.
• Current rules: Naked short-selling is banned; SEBI mandates delivery of securities at the time of settlement. Only stocks in the F&O (Futures and Options) segment are allowed for short selling.
• SEBI’s Observations: Non-institutional investors engage in short selling of non-F&O stocks by selling and squaring off positions within the same trading day.

o The direct payout of securities may impact short-term strategies like buy-today-sell-tomorrow (BTST).

o Stocks purchased in earlier settlements but not yet delivered will not be considered short sales.

• About: SEBI is the regulatory authority for India's securities market.

o Established in 1988, it gained statutory powers through the SEBI Act, 1992.

o Key reforms include paperless trading, electronic settlements, and the T+1 settlement cycle.

• SEBI has civil court-like powers under the Code of Civil Procedure, 1908, allowing it to: Investigate and take action to protect investor interests → summon individuals, inspect books and registers of market participants → suspend trading of any security → restrict individuals/entities from buying, selling, or dealing in securities → impound proceeds or securities related to investigations