The Securities and Exchange Board of India on Wednesday met 12 foreign institutional investors, who issue participatory notes and facilitate short selling, to discuss overseas stock lending and borrowing.
However, the regulator dealt with the FIIs on expected lines and the meeting was over without Sebi spelling out any action against 'dubious' short sellers.
Earlier on October 17, Sebi had written to all the PN-issuing FIIs to submit the data for stocks lent overseas in 2008 so far by October 23.
Stocks of over Rs 1,000 crore (Rs 10 billion) have been short sold in domestic markets between October 10 and 17 through overseas borrowing, causing over 12 per cent fall in benchmark indices.
Even after expressing severe displeasure over FIIs' overseas stock lending/borrowing activity on Monday, the regulator on Wednesday did not set any specific deadline for unwinding of short positions created through stocks borrowed overseas.
A top Sebi official said, "We issued a warning to FIIs and asked them to stop their overseas lending and borrowing activity. There is a lending/borrowing mechanism available in India and FIIs can use it for short selling."
The Sebi inaction has not gone down well with some market players, who are of the view that the regulator is not providing a level-playing field to domestic investors.
"It's really surprising that Sebi took no action despite having clear evidence that a huge amount of short selling in India was due to dubious deals struck overseas," said a fund manager with a domestic mutual fund house.
Deven Choksey, managing director of Mumbai-based brokerage K R Choksey, said, "It's unfair to domestic investors as there is no level-playing field. While short selling is also necessary, Sebi should at least introduce a delivery-based settlement system in the derivatives segment to stop traders from exploiting the cash-settled F&O market."
Traders, who had helped the market go up by over 5 per cent by covering their shorts on Monday and Tuesday, on Wednesday pulled it down by nearly 5 per cent as Sebi softened its stand, making it clear that there was no urgency to unwind past positions.
