INDIA: RBI Relaxes Rules on India Short Selling Government Debt

Friday June 22 2012

As per previous guidelines issued by RBI, banks are permitted to undertake `notional` India short selling whereby they can sell a security short from HFT portfolio even if the security is held under their AFS/HTM portfolio. In view of the various scenarios under which a participant may end up with simultaneous ‘long’ and ‘short’ position in specific securities in the HFT portfolio, RBI has decided to permit ‘notional’ short sale from the HFT portfolio even if the concerned security is held under the HFT portfolio subject to the condition that the participant undertaking the ‘notional’ short sale would cover the same through a subsequent outright purchase or carry the short position beyond overnight by acquiring the security under reverse repo but not use the securities already held in the HFT portfolio for delivery against the short sale.

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