Ban on short sales revoked

MUMBAI, June 25: With the Sensex recovering by 171 points in the last two days, the Securities and Exchange Board of India Sebi has decide...

MUMBAI, June 25: With the Sensex recovering by 171 points in the last two days, the Securities and Exchange Board of India Sebi has decided to lift the ban imposed on short sales from July 6.

8220;Restrictions on short sales would be lifted from July 6. However, while doing this we will ensure that special margins are imposed on volatile stocks,8221; Sebi chairman D R Mehta said. The decision was taken at a meeting of Sebi and the Inter-exchange Co-ordination Group here today. 8220;The stock exchange representatives who met today felt that it was necessary to define the concept of volatility and also rework the package on margins,8221; Mehta said. The Sebi decision came as Sensex recovered by another 65 points to 3208.54 today.

Sebi partially banned short sales on June 16 following sustained erosion in share values. It had ordered that all outstanding sales position should be squared up or result in delivery at the end of a trading day.

It was felt at the meeting that the outstanding positions of short sales andlong purchases have come down substantially and hence the time was ripe to remove the restrictions on short sales. Sebi has appointed a sub-committee comprising the representatives of the Bombay, Calcutta, Bangalore, Ludhiana and National stock exchanges along with Sebi representatives to decide on issues relating to the margin system and discuss the feasibility of implementing a uniform settlement all over the country. The sub-committee is scheduled to meet on June 29.

8220;The committee has been set up to recommend to Sebi the additional margin system which could be in place before the removal of the restrictions imposed on short sales,8221; Mehta said, advocating a balanced margining system which would ensure that the recent mishap would not be repeated.

The meeting also deliberated the need for uniform price caps of a daily price band of 10 per cent upwards or downwards and a weekly band of 25 per cent. Citing the example of Videocon International in the absence of an adequate margining system whichwould have checked the continuous hammering, the stock slipped by 25 per cent in three trading sessions between June 8 and 10, the exchange representatives highlighted the importance of reviewing the price bands in the case of volatile scrips on a daily basis.

It may be recalled that the strong bear lobby turned Sebi8217;s curbs to their advantage to make a daily killing. They had begun to short sell in the opening market and square off before the market closed.

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For example on Monday, the Sensex fell by nearly 190 points in the morning session but recovered most of the lost ground later and the final loss was restricted to only 65 points. The same story was repeated on Tuesday when the Sensex initially fell by 123 points but partially recovered as the loss was restricted to 41 points. This trend which started after the budget, has now gained ground. 8220; This situation along with the rise in Sensex in the last two days might have prompted Sebi to lift the curbs,8221; said a broker.