SEBI Circular: Short Selling Permitted, Naked Selling Prohibited – Understanding the Distinction
The Securities and Exchange Board of India, or SEBI, released its new circular on Friday. It states that all investors in India will be allowed to engage in short selling, but naked short selling will continue to be prohibited. Short selling can now be done in all stocks.
SEBI Circular: Information Required Before Short Selling
SEBI’s circular also mentions that institutional investors engaging in short selling need to provide information before initiating short sales. These investors must disclose that they are involved in short selling before executing any short sale transactions. Approval for intraday positions will not be granted.
Square Off After Buying or Selling Shares
When you buy shares and then sell them or sell shares and later buy them, it is termed as squaring off. This term is used when the buy and sell or sell and buy cycle completes on the same day. In this case, it is referred to as Square Off rather than Intraday Square Off.
Difference Between Short Selling and Naked Short Selling
Short selling involves selling shares during trading hours that the trader does not own, planning to buy them later at a lower price. Naked short selling is when a trader sells shares without actually having ownership or arranging to borrow them. In countries like the United States, naked shorts are prohibited.
Short Selling Assistance through Securities Lending and Borrowing (SLB) Scheme
To facilitate short selling, SEBI has introduced the Securities Lending and Borrowing (SLB) Scheme. Traders in the F&O segment can engage in short selling through this scheme. Brokers will provide daily data to the stock exchange regarding the short positions of their clients.
Settlement Time Challenges in Security Delivery
Traders who face difficulties in successfully settling their trades in the security delivery segment can opt for short selling assistance through the SLB scheme. This helps in avoiding unsuccessful settlements during the settlement time.
No Impact on Current Traders from SEBI Circular
According to the former SEBI insider, Mr. JN Gupta, there will be no impact on current traders due to the recent SEBI circular. Under the stock exchange’s mechanism, anyone shorting in settlement has to take delivery.
