New Delhi: The National Stock Exchange (NSE) will in the next few weeks enable a longer window for settling short-selling transactions, under which investors sell borrowed shares.
When short-selling started in India in December 2007, the settlement window was just a week until market regulator Sebi amended it in January allowing up to a month for settlement.
However, in a 2010 circular, Sebi said the tenure can be for a period of up to a year, so the buyer doesn’t have to return the security or cash within a month.
A short sale is the sale of a security that isn’t owned by the seller, but that is promised to be delivered. Under the modified rules, the borrowed shares can be returned anytime up to a year from the transaction, as against a month currently.
Short selling can benefit the market because speculators increase trading volume, assume risk and add market liquidity.
NSE is modifying the mechanism after the market watchdog Sebi came out with a new set of framework on short-selling early this year.
“The NSE is modifying the existing securities lending and borrowing mechanism according to the new guidelines by Sebi in January 2010 and it will be operational in a few weeks,” said an official of the exchange.
In the same 2010 circular, the Sebi had directed the bourses and depositories to initiate necessary steps for the implementation of the modified SLB framework.
The revision were made pursuant to feedback received from market participants and proposals for revision of SLB received from the NSE and BSE -- the two main stock exchanges in India.