India’s securities regulator plans to make it easier for investors to short sell stocks by nearly doubling the number of shares eligible for lending and borrowing, and cutting collateral requirements, according to Reuters, citing two people with direct knowledge of the matter.
The move is aimed at boosting the cash equities market and drawing investors away from the far larger derivatives market, the news agency says in a report on July 7.
Investors are now only allowed to short sell shares of about 5% or 176 of the approximately 2,600 firms listed on the National Stock Exchange, and Indian authorities hope to include the majority of liquid shares by doubling the number, according to the report.
It says the Securities and Exchange Board of India (Sebi) is looking at three areas to relax the short-selling rules: liquidity, trading volume and a stock’s ability to support exposure to derivatives trading.
For example, a stock must have an average monthly trading turnover of at least 1 billion rupees (US$10.5 million) over the previous six months, and must be large enough to support derivatives exposure of at least 1 billion rupees.
“Deliberations are on relaxing the two thresholds,” one of the two people is quoted as saying in the report.
There are also rules relating to how much of a stock should be held by public shareholders. Details are likely to be finalised by the end of this year, the report says.
Spokespersons for Sebi did not immediately respond to questions from Asia Asset Management.
