• IND SEBI introduced comprehensive framework for short selling in securities market.
• Master circular dated 16 October 2023, contains framework on Short selling and securities lending and borrowing scheme; current circular outlines the short-selling framework.
• Follows IND SEBI October 2023 issued master circular for stock exchanges.

Framework

• Short selling is act of selling a stock that seller does not own at the time of the trade.
• All classes of investors, including retail, institutional investors, permitted to short sell.
• Naked short selling strictly prohibited in the Indian securities market; all investors are mandated to honor their obligation of delivering securities during settlement.
• Institutional investors restricted from day trading must fulfill obligations on a gross basis; custodians must settle deliveries on a net basis with the stock exchanges.
• Stock exchanges mandated to frame deterrent provisions against brokers failing to deliver securities during settlement, ensuring a robust mechanism to prevent failures.
• A scheme for securities lending and borrowing (SLB) will be implemented to provide impetus to short sell; introduction of full-fledged securities lending/borrowing scheme will be simultaneous with introduction of short selling by institutional investors.
• Stocks traded in the futures and options (F&O) segment are eligible for short selling; IND SEBI retains the authority to review the list of eligible stocks periodically.
• Institutional investors must disclose upfront whether a transaction is a short sale.
• Retail investors can make a similar disclosure by the end of the trading day.
• Brokers mandated to collect/disclose scrip-wise short sell positions to stock exchanges.