SEBI to allow short-selling by institutions

Capital market regulator, SEBI Thursday said it will soon issue guidelines on short-selling that will enable institutional investors to sell stocks without owning them. "Individuals are allowed to shortsell, we are extending it to financial institutions, including mutual funds, soon," SEBI Chairman M. Damodaran said on the sidelines of the Financial Planning Congress here.

The guidelines are being finalised and will be issued soon, he said without specifying the date.

The market watchdog at its board meeting held on March 22 had allowed short-selling by institutional investors, both domestic and foreign. However, the relevant guidelines will come out shortly.

The decision on short-selling, followed the announcement by Finance Minister P. Chidambaram in the Budget on February 28. The SEBI-appointed secondary Market Advisory Committee, had also recommended short-selling by institutional investors in October 2005.

It is believed that initially short-selling would be permitted only on those stocks in which derivative products are available. The introduction of short-selling is likely to benefit the market in more ways than one.

Apart from improving efficiency and liquidity, it will also help increase participation in a falling market since institutions will try to take advantage of such a market by going short, thus improving the market depth.