INDIA: Revised Directions on Short Selling Transactions Issued

Wednesday August 1 2018

On 06 June 2018, the Reserve Bank of India (RBI) released Statement on Developmental and Regulatory Policies, which among other changes, increased the limits for short selling in Government Securities.

A comprehensive review of the existing directions/circulars on ‘Short Sale’ transactions has been subsequently carried out and revised directions have been issued (Short Sale (Reserve Bank) Directions, 2018). These directions supersede all existing regulations on short sales and a list of circulars which have been consequently withdrawn have been outlined by the RBI.

Under the Directions, the following entities are eligible to undertake short sales:

• Scheduled commercial banks;
• Primary Dealers;
• Urban Cooperative Banks as permitted under circular UBD.BPD (PCB). Circular No.9/09.29.000/2013-14 dated September 4, 2013; and
• Any other regulated entity which has the approval of the concerned regulator.

The maximum amount of a security (face value) that can be short sold is:

• For Liquid securities; 2% of the total outstanding stock of each security, or, Rs.500 crore, whichever is higher.
• Other securities; 1% of the total outstanding stock of each security, or, Rs.250 crore, whichever is higher.

Information regarding the outstanding stock of each Government of India dated security is available on the RBI website https://www.rbi.org.in/scripts/financialmarketswatch.aspx

The short sale position executed in the OTC market should be reported on the NDS-OM platform within 15 minutes of the execution of the trade.

For more information, please click on the above link.