Sebi makes short selling disclosures mandatory

MUMBAI: Days after the Supreme Court asked Sebi to probe if losses due to short selling in Adani stocks were in violation of any law, the markets regulator on Friday made disclosures mandatory for such trades and allowed institutional investor participation. Short selling was earlier restricted to retail and HNI investors, but without disclosure requirement.
The new rules come after solicitor general Tushar Mehta, during hearing of the Adani-Hindenburg case at the apex court, said that the Centre and Sebi will frame rules to regulate short selling.
Sebi said that institutional investors will have to disclose upfront whether a transaction in shares involves short selling, while retail investors will have to do so by the end of the day when a trade is made. Under the new framework, exchanges need to disclose the details before the start of the next day’s trading.

The regulator also said that institutional investors will not be allowed to do intraday trading.
Short selling involves borrowing a stock to sell it in the expectation the price will fall, then repurchasing the shares and pocketing the difference. Sebi has banned ‘naked short selling’, a practice prevalent in most developed markets. The so-called naked short sells refer to trades where investors sell stocks without having already borrowed or located the shares to be sold.
Sebi allowed short selling in all the stocks which are traded in the derivatives segment of the market. Derivatives trades could act to rein in price volatility in stocks that have substantial short selling positions. During the Adani-Hindenburg case hearing, it was disclosed that about 12 institutions had gained by short selling Adani Group stocks.