Big news may come soon for stock market investors. SEBI is working on changes that will make short selling easier than ever. Under these schemes, the number of shares eligible for lending and borrowing facilities may almost double. Apart from this, there are also plans to relax the collateral requirements for investors.
**What changes are being made?**
Currently there are about 2,600 companies listed on the National Stock Exchange (NSE), but the facility to lend and borrow stock is available only for 176 of these companies. SEBI is now planning to increase this number significantly so that more liquid stocks (shares that can be easily bought and sold) come under this ambit. Additionally, the excessive collateral that investors currently have to provide to borrow shares can also be reduced. In many cases in India this requirement can be up to 130%, whereas in places like America and Europe it is almost 100%.
**What is short selling?**
Short selling is a trading strategy in which an investor borrows shares and then sells them. If the share price later falls, the investor buys them back at a lower price and keeps the difference as profit. In other words, this gives them the opportunity to make money even when the share price is falling.
**Why is SEBI making this change?**
Derivatives trading has grown rapidly in India in the last few years. However, according to SEBI, almost 90% of retail investors suffer losses in derivatives trading. Therefore, the regulator wants investors to return to the cash equity market, which is considered safer. SEBI believes that simplifying the process of stock lending and borrowing will increase trading in the cash market and provide investors with better and less risky options compared to derivatives.
**When can the new rules come into force?**
According to sources, SEBI is rapidly discussing this proposal and the final draft of the new rules may be ready by the end of this year. However, the regulator has not yet made any official announcement in this regard.
