Key Points
The circular also allows short-selling in the futures & options (F&O) segment, but reiterates that naked short selling (selling a security without first arranging to acquire it) will continue to be banned..
Apart from giving institutions permission to short-sell, the regulator proposed a borrowing & lending scheme to facilitate short-selling..
The circular also said an institutional seller must state whether a sale offer is a short-sell when placing the order, and that institutions wont be allowed to square off positions intra-day (paying cash to settle instead of delivering the stock)..
Under such circumstances, known short-sellers (who can be identified easily) are likely to face very high risks since the price of a stock need only be ramped up for short periods before the short seller must ensure delivery and return the stock..
A good short-selling mechanism could aid in price discovery and help promote the development of the stock market while still affording protection to investors..
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