The Hindu Business Line : SEBI to revamp short sales regulations

FACED with the accusation of regulatory weakness on the area of short sales in the capital markets, the Union Government has said that the Securities and Exchange Board of India (SEBI) is in the process of reviewing its regulations on short sales.

Appropriate safeguards have also been promised in the operations of the securities lending scheme. In the action taken report (ATR) on the report of the Joint Parliamentary Committee (JPC) on stock market scam that surfaced in 2001, the Government has said that a note on regulation of short sales has been prepared and placed before the SEBI Secondary Market Advisory Committee for its consideration.

"The recommendations of the committee along with the comments received on them would be placed before the SEBI board for a final decision," the Government has said.

The JPC had, in its report, expressed concern over the inability of SEBI in arriving at any definite policy on measures concerning short sales.

The report highlighted that SEBI had initially rejected the recommendations of its committee on short sales in December 1996 for the imposition of margins to restrict short sales.

Later, reversing its own stand SEBI started prescribing margins on net outstanding sale positions from June 1998.

It was also highlighted that the question of introduction of the rule of prohibition of short sales on down tick has been under the consideration of SEBI's committee on short sales since June 1998, without any final recommendation in sight even after four years.

The note before the Secondary Market Advisory Committee has sought the views of the committee on whether, in the changed market infrastructure, (a) there is a need for regulation for short selling (b) the recommendations of the B.D. Shah Committee are adequate or need to be reconsidered (c) the US model of regulation is suitable and implementable (d) the institutional investors can be allowed to undertake short sales and their transactions be subjected to normal exposure and margining requirements, among others.

On the securities lending scheme, an assurance has been given that appropriate safeguards would be in place before a new scheme is introduced.

SEBI is reviewing the Securities Lending Scheme 1997, taking into account the concerns expressed by the JPC.

Securities Lending Scheme was introduced in 1997 to increase liquidity in the market and to facilitate timely delivery of securities and correct temporary imbalance between demand and supply.

While there is RBI restriction on bank loans against the security of shares to Rs 20 lakh per borrower, the JPC's report said that, it appears, no such restriction has been imposed by SEBI on stock lending by approved institutions (such as SHCIL) against the security of money deposited with them.

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SEBI to revamp short sales regulations