Sebi to issue short selling guidelines within 2-3 months

The decision on short-selling followed the announcement by finance minister P Chidambaram in the Budget on February 28 on the issue. The Sebi-appointed secondary Market Advisory Committee had also recommended short-selling by institutional investors in October 2005.

Currently, short-selling is only available to retail investors and institutional investors are not allowed. It is believed that initially short-selling would be permitted only in those stocks in which derivative products are available.

Besides, naked short sales might not be permitted, which means investors would be required to honour their obligation of delivering the securities at the time of settlement. 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.