RBI may let in short selling

NEW DELHI: In what could set the stage for rollout of short selling, RBI is working on a framework for stock lending and borrowing (SLBM).

The central bank has given in-principle concurrence for the move and will take a call on the timing of its rollout keeping in view concerns about capital inflows.

Sources said RBI, which has been ambivalent on the issue for some time, has given its in-principle go-ahead to the proposal at a recent meeting with market watchdog SEBI and government officials. It was, however, decided at the meeting that the timing of the rollout would be left to the central bank.

RBI feels short selling would lead to an increase in inflows and wants it to be launched at a time when such inflows would not be a concern for the economy.

RBI also wants certain safeguards to be put in place before short selling is rolled out. These safeguards may be included in the final short selling guidelines announced by SEBI. The market watchdog has readied its set of detailed guidelines.

Short selling is a transaction where an investor can sell a stock without owning it. He borrows the stock from another entity and gives it for delivery. The investor later buys the stock from the market and returns it to the entity he borrowed it from.

Initially, short selling will be allowed in 159 stocks in which derivative trading is already allowed. At present, institutions are allowed to take positions in the futures and options market to short-sell.

Allowing them to short-sell in the cash market is expected to deepen the stock market further and allow stock values to reflect more accurately the opinions of all investors.