07 January 2010

Short selling - reform in the regulation

This blog has been arguing for the past one year that to enable short selling, two major roadblocks need to be cleared. a) Increase the maximum period for which securities can be lent/borrowed (it was increased from 7 days to 30 days, but that is still highly inadequate). b) Don't mandate an institutional mechanism to borrow/lend securities through the exchange. People should be free to borrow from whosoever they wish.

Today, SEBI liberalised the 30 day cap on borrowing/lending to one year. This is a positive news, and could possibly kickstart the as yet dead market of short selling. Now, if we get rid of the silly compulsion on borrowing from the exchange system, we could really get rolling on this.

See the recent SEBI circular.

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