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SEBI issues circular on short selling

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Short Selling

The SEBI, on Wednesday, issued a circular on the “Framework for Short Selling” which hold that the Annexure 3 of Chapter 1 of the SEBI Master Circular for Stock Exchanges and Clearing Corporation dated October 16, 2023, must be read in line with the SEBI Circular dated December 20, 2007. The Paragraph 10 of Chapter 1 of the SEBI Master Circular contains the framework on ‘Short Selling and Securities Lending and Borrowing Scheme’.

Briefly, the SEBI Circular permits all investors to engage in short selling, provided they make appropriate disclosures. The Circular clarifies that the brokers must gather and submit script-specific short selling positions to the stock exchange prior to the commencement of trading on the following day. Additionally, the regulatory body will periodically assess the list of eligible stocks for short selling in the future and options segment while strictly prohibiting any form of naked short selling.

Further, no institutional investor shall be allowed to indulge in day trading. The 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 Stock exchanges must frame uniform deterrent provisions and take necessary actions against the broker for failure to deliver securities at the time of settlement. A scheme for Securities Lending and Borrowing (SLB) shall be put in place to provide the necessary impetus to short sell. 

In this background, Financial Express (India) has featured an article discussing the framework on short selling.

The article features views of Mr. Sumit Agrawal, Managing Partner, Regstreet Law Advisors, and former SEBI officer, who observed that, “the latest circular must not be misconstrued as introducing new restrictions or requirements, and is not directly related to the recent short-selling activity in the Adani-Hindenburg issue. The latest master circular has undergone amendments, leading to the elimination of outdated circulars for enhanced legislative clarity. The obligations of investors to furnish scrip-wise details of short-selling and for brokers to upload the same onto the stock exchange before engaging in short-selling remains unchanged.”

A copy of Financial Express (India) article is enclosed below.

The copy of the SEBI Circular dated January 5, 2024 can be accessed at: https://lnkd.in/dtYZAqBj

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