Market regulator Securities and Exchange Board of India on Friday decided to permit all classes of investors --institutional and retail -- to sell shares without owning them at the time of trade.
"The stock exchanges would issue the necessary guidelines in this regard and will put in place systems to operationalise the mechanism of short-selling," Sebi said.
However, the system of 'naked short selling' as is available in the US markets has not been allowed, and all investors must honour their obligation of delivering the securities at the time of settlement.
In order to provide for a mechanism for borrowing of securities to enable settlement of securities that are sold short, Sebi has decided to implement a full-fledged
securities lending and borrowing scheme for market participants. Stock exchanges would issue guidelines in this respect as well.
Sebi advised stock exchanges and depositories to put necessary systems in place to distinguish between the lending and borrowing transactions executed for short selling from the normal market transactions in the demat system. The market regulator will intimate date of implementing short-selling later.