Sebi Allows Institutional Short-Selling

Sebi Allows Institutional Short-Selling

The Securities and Exchange Board of India (Sebi) on 2 January 2008 said it would allow short-selling by domestic and foreign institutional investors from 1 February 2008. Last month, Sebi had given its nod for short-selling, which it had banned in 2001 in the aftermath of Ketan Parekh scam.

“The Reserve Bank of India has given its nod to Foreign Institutional Investors (FIIs) for short-selling, now Sebi will allow it for all institutional investors from February 1,” said Sebi chairman M Damodaran here.

Damodaran’s comment came a day after the RBI allowed FIIs and their sub-accounts to short sell, lend and borrow equity shares in Indian companies. All institutional investors, overseas and domestic, would be able to short sell, Damodaran said.

He further said that Sebi was ready to review the 10% limit of stake held by directors or key management personnel in a company, proposed to be brought under the insider trading norms.

“What we have put out yesterday is a paper for discussion. Whether 10% limit of stake held by officers or promoters was too high or low will be finalised after receiving public comments,” he said.

This regulation, Damodaran said, was aimed at checking insiders, who have greater access to price-sensitive company information, of making short-term profits.

Earlier, Sebi in order to curb insider trading, had proposed that company insiders should surrender profits made in any equity-based securities transactions of the company, if both the buy and sell side of the transaction are entered into within six months of the other. The regulator has invited public comments on the discussion paper by 21 January 2008.