SEBI to soon form a working group to review short-selling and SLBM mechanism, says SEBI Chairman Tuhin Kanta Pandey

SEBI to soon form a working group to review short-selling and SLBM mechanism, says SEBI Chairman Tuhin Kanta Pandey

Market regulator Securities and Exchange Board of India (SEBI) is soon going to form a working group to comprehensively review the short selling and Stock Lending and Borrowing Mechanism as the idea is to deepen the cash market segment. SEBI Chairman Tuhin Kanta Pandey stated the framework for short-selling was introduced in 2007 and has remained unchanged since then. Further, the securities lending and borrowing mechanism was introduced in 2008 and modified a few times subsequently. However, this segment remains significantly underdeveloped as compared to other jurisdictions. Pandey said, “We will soon form a working group to comprehensively review short-selling and the SLBM frameworks." Pandey was speaking at CNBC-TV18 Global Leadership Summit in Mumbai on Friday.

Pandey further said that SEBI is focused on deepening the cash equities market to spur capital formation. He stated, “An active securities lending and borrowing scheme is critical for improving price discovery and facilitating interlinkage between the cash and derivative segments”. SLBM, from a borrower's perspective, facilitates the settlement of securities sold short, while lenders can earn a fee on their idle securities.

Short selling is an investment strategy where an investor borrows a share and sells it on the open market, betting that the price of the share will fall. The investor then buys the shares back at a lower price to return to the lender, pocketing the difference as profit. It is a strategy used to profit from a decline in a shares price.

SLBM stands for Stock Lending and Borrowing Mechanism, a system that allows investors to lend their shares to other investors for a fee, or borrow shares they don't own for a fee. This allows lenders to earn extra income on their holdings without selling them, while borrowers can use the shares for purposes like short selling or arbitrage. The whole process is governed by regulations, making it a secure and regulated process.

Moneycontrol had reported that SEBI is exploring ways to deepen the cash market and had sought views of all stakeholders including exchanges, clearing corporations and brokers. Now SEBI is expected to form a working with the feedback or refer the matter to SEBI advisory committee.

Also read: SEBI initiates active deliberation on ways to deepen the cash market segment