India’s government and the Securities and Exchange Board of India (SEBI) said they have no objection to the Supreme Court constituting an expert committee to examine the existing regulatory regime and frameworks in the securities market to protect investors from share value meltdowns like seen in the Adani Group, triggered by the US-based short-seller Hindenburg Research report on the conglomerate.
Read from The Hindu
Market regulator SEBI has indicated to the Supreme Court that it is not in favor of banning short-selling or sale of borrowed shares, and said it is investigating allegations made by Hindenburg. A 20-page note submitted to the court judge reads: “Short selling is considered by some to be a desirable and an essential feature of the securities market, as it provides liquidity and also helps price corrections in overvalued stocks. Thus, any restrictions on short selling, per se, may distort efficient price discovery, provide promoters unfettered freedom to manipulate prices, and favor manipulators rather than rational investors,” it said, adding others consider it an undesirable activity that flourishes on distressed selling and is vulnerable to its own form of manipulation.
Read from Economic Times India
In an interview, Ajay Shah, a markets expert and former member of the SEBI committee on the evolution of markets, said: “At present, in a realistic sense, there is no short selling in India” because there is no borrowing of shares on multi-day horizons, adding that there’s “severe confusion” around the terminology in the Indian context. He is quoted as stating: “Retail investors are protected when the big boys will spot problems in stock prices and use short selling to bring about a correction. For the top 50 to 100 stocks, where derivatives trading is available, de facto this is now being done using the derivatives. But for the remaining securities, this is currently not being done. This is where short selling mechanisms (i.e., securities lending mechanisms) will help. I do not recommend that retail investors engage in short selling, or in active financial markets trading. They are better off being long-term investors using index funds.”
Read from The Wire
Last week, the Reserve Bank of India (RBI) proposed to allow non banks like insurance companies and pension funds to lend and borrow government securities, which it said will add depth and liquidity to the bond market and aid efficient price discovery. The new norms will essentially allow entities to borrow and lend government securities by paying or receiving a premium. The central bank will soon issue draft directions separately for stakeholder comments. Dealers said the new norms will make more people eligible to take a short position on government securities.
Read from The Economic Times India