SEBI Bans Naked Short Selling: Indian stock market regulator SEBI has decided to ban naked short selling in the stock market. SEBI has said that short-selling will be allowed to every category of investors in the market but naked short-selling investors will not be able to do it. SEBI said that short selling will be allowed in all the stocks available for trading in futures trading i.e. future-options.
Sebi said in the framework issued regarding shot-selling, that naked short-selling will not be allowed in the Indian securities market. All investors will have to fulfill the obligation of delivery of securities at all times during settlement. Short-selling of stocks available in futures trading will also be allowed. However, SEBI will keep reviewing it from time to time.
According to SEBI, under the new rules, institutional investors will have to inform during the placement of orders whether the transaction is short-sale or not. However, retail investors will have to make disclosures on the day of the transaction itself, after the end of the trading day. SEBI has also ordered that institutional investors will no longer be able to do day trading.
In naked short selling, short selling of shares is done without purchasing the shares or without confirming that the shares will be purchased in future. Short selling came into discussion in India in January 2023. Short seller Hindenburg released a report accusing Adani Group of unethically driving up share prices. Hindenburg did short selling in Adani Group's stock. After which there was a sharp decline in the stocks of Adani Group companies listed in the stock market.
What is short selling?
Short selling is a method of trading in the stock market. Under short selling, any investor sells the share at a higher price and buys it back when the share price falls below. The difference between the higher price at which the share was sold and the lower price at which the share was bought is the investor's profit. Investors do not make profit in the market only by buying shares but can also make profit by selling shares without buying them and this is called short selling.
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