Get set for short selling on April 21

By Sajeet Manghat/CNBC-TV18

 

The Stock selling, lending, and borrowing mechanism kicks in on April 21 on both exchanges. All classes of investors would be allowed to short sell. Institutions will not be allowed to indulge in day trading, but they will have to come out and say whether they want to short sell or it's a normal trade. Retail investors will have the option of disclosing their trades as short sell by the end of the day.

 

The entire stock lending and borrowing mechanism will be based on stocks, which are part of the F&O list, or around 250 stocks. To begin with, the stock lending and borrowing mechanism will happen in 250 stocks. The entire transaction would be completed on a T+1 basis and the lending or borrowing will be for a period of seven working days. So, if one borrows a stock today, the squaring up of that will happen after seven working days from the date of borrowing of the stock.

 

The margins and collaterals will be applied on an upfront basis. For some market participants, there are some position limits which have been placed at around 10% of the market-wide limit. Also, the market-wide limit for these stocks would be for 10% of free float.

 

But for individual clients, the position will be 1% of the market-wide limit. That's the maximum, which a client can take there. On a taxation issue, there will not be any Security Transaction Tax, or STT, which will be charged for Securities Lending and Borrowing, or SLB. But on short selling, STT will be levied and will attract capital gains there.

On the whole, it would be April 21 is a day when we will have short selling and stock Securities Lending and Borrowing.

 

 

AT A GLANCE

Short Selling

* To start from April 21

* To be accompanied by stock lending and borrowing mechanism

* All classes of investors allowed to participate

* Naked shorts not allowed, institutions not allowed to do day trading

* Stocks part of F&O would be eligible for short selling

* Institutional investors need to disclose upfront if trade is short sale

* Retail investors allowed to disclose by day-end

SLB Transaction

* Stocks in F&O segment eligible for SLB Scheme

* Electronic matching of borrowers' and lenders' quotes

* Transaction to be settled on a T+1 basis

* Tenure for lending/borrowing to be of seven working     days after SLB day (T+8)

* SLB transaction session between 10-11 am daily

* Margins and collaterals to be applied on a upfront basis

* Market-wide position to be 10% of free float

* Participation position cannot be more than 10% of market-wide limit   or Rs 50 crore whichever is lower

* Client level position cannot be more than 1% of market-wide position

* FII sectoral caps applicable for FIIs participating in SLB

Taxation Issue

* Scheme of stock lending and borrowing not subject to STT

* Profit from stock lending and borrowing not subject to capital gains

* CBDT says U/S 47 and 98 stock lending and borrowing does not   lead to transfer of securities

* Short selling transactions and profit from these to attract STT   and capital gains