SEBI
Proposes to Ease Short Selling
Prelims:
Indian
Economy
Mains:
GS
Paper II-Governance, GS Paper III-Indian Economy
Current relevance:
The Securities and Exchange Board of
India (SEBI) has proposed easing short selling by nearly doubling the
number of stocks eligible for borrowing under the Securities Lending and
Borrowing (SLB) mechanism.
Highlights:
1.
SEBI's
Proposed Changes:
SEBI
is considering several important reforms to improve the existing framework.
i.
The
regulator plans to nearly double the number of stocks eligible for
lending and borrowing. This would allow most liquid and actively traded
shares to become part of the SLB system.
ii.
SEBI
intends to reduce collateral requirements. Lower collateral would
decrease the amount of money or securities investors need to provide before
borrowing shares, making participation more affordable and increasing market
activity.
2. These reforms are
intended
i.
To
strengthen India's cash equity market and
ii.
Encourage
investors to participate in stock trading instead of relying heavily on
the derivatives market, which has grown rapidly but carries greater risks,
especially for retail investors.
3.
Short
Selling:
It is an investment strategy in which an
investor borrows shares, sells them at the current market price, and later buys
them back at a lower price to earn a profit.
4.
Stock
Lending and Borrowing (SLB) Mechanism:
i.
Short
selling requires a Stock Lending and Borrowing (SLB) mechanism, which
allows investors to borrow shares legally and securely before selling them.
ii.
This
system improves market liquidity, supports price discovery, and
increases overall market efficiency.