Naked short selling, the practice of selling shares in an asset without owning, borrowing, or securing the right to borrow them, has been prohibited in the Indian Stock Market since 2008.
This can be risky because they're not really owning what they're selling.A bunch of countries, like the US, UK, Australia, and India, stopped this kind of selling around 2007-08 because it could mess up the market. Big companies would sell a lot of shares they didn't really own, making the prices drop. Then they'd buy them back at the lower price, which hurt both big companies and small-scale investors.
Short selling is when someone borrows something they don’t own (like a stock), sells it, and plans to buy it back later at a cheaper price. In India, short selling was stopped between 2001 and 2008 due to accusations of insider trading that caused stock prices to drop.
The Supreme Court asked SEBI during the Adani Hindenburg case to create a way to prevent investors from losing money. Short selling was banned after the Ketan Parekh scam between 2001 and 2008. Also, there was a ban on short selling between March 2020 and October 2020 because of the COVID lockdown.
What does this new circular say? According to SEBI's circular on Short Selling, it's not allowed to do naked short selling in shares. When settling, investors must deliver the shares to fulfill their obligation.
Institutional investors cannot do day trading, meaning they won't be allowed to square off their orders on an intra-day basis. The new part in this circular is: Institutional investors have to inform before executing a short sell order. Retail investors can disclose their short sell orders by the end of trading hours.
Brokers will gather details about selling stocks without owning them for each individual stock. They'll collect data and submit it to the stock exchange before the next day of trading. The stock exchange will share this information with the public on a weekly basis.
Exchanges need to make sure that brokers complete the delivery of shares they sell. If they can't complete it, appropriate actions are taken against them. To properly handle short selling, there's a scheme called Securities Lending and Borrowing (SLB). When institutional investors place a short selling order, this scheme should come into action. Short selling is allowed for stocks that are permitted for Futures and Options (FnO) trading.
Sebi's recent circular - [ Ссылка ]
Sebi's previous circular- [ Ссылка ]
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00:00 Intro
00:10 What is Naked Short Selling
00:57 Impact of short selling on retail trader
01:22 Concept of short selling in 2008
02:26 Sebi new circular
03:20 Broker duties in Sebi’s new circular
04:49 Short selling in China
05:00 Short Selling banned in South Korea
