Short Selling Again Permitted In India

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

25 March 2008

India's Securities and Exchange Board (SEBI) last week confirmed that from April 21st, short selling and securities lending and borrowing will once again be permitted, ending a ban put in place in 2001.

In a circular published on Wednesday, SEBI provided an update to an earlier communication on the subject in December 2007, which specified the broad framework for short selling by institutional investors and the securities lending and borrowing scheme for all market participants.

The regulator went on to advise stock exchanges and depositories to:

• Make the necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the decision;
• Bring the provisions of the circular to the notice of the member brokers/clearing members, and depository participants, and disseminate them on their websites; and
• Communicate to SEBI, the status of the implementation of the provisions of the circular in the Monthly Development Report.

SEBI also last week modified a circular dated February 23rd, 2005, which specified the risk management framework for the cash market.

It explained that:

"In order to provide a level playing field to all the investors in the cash market as in the case of derivatives market, the aforesaid circular is partially modified to provide that all institutional trades in the cash market would be subject to payment of margins as applicable to transactions of other investors. This would be implemented with effect from Monday, April 21, 2008."

And continued:

"To begin with, from April 21, 2008, all institutional trades in the cash market would be margined on a T+1 basis with margin being collected from the custodian upon confirmation of the trade."

"Subsequently, with effect from June 16, 2008, the collection of margins would move to an upfront basis."

Recommended