EBI may rejig short-selling norms

  • March 11, 2025
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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EBI may rejig short-selling norms

Sub : Eco

Sec: Capital Market

Why in News?

  • SEBI is set to release a consultation paper on revamping short-selling regulations in the stock market.
  • The proposed changes aim to increase market efficiency by removing certain restrictions and penalties on short sales.

Key Proposals

  • Expansion of Short-Selling Eligibility
    • All stocks (except those in the Trade-to-Trade (T2T) segment) may be allowed for short selling. Currently, short selling is restricted to stocks in the Futures & Options (F&O) segment.
  • Relaxation in Disclosure Norms
    • Institutional investors may no longer be required to disclose short sales upfront.
    • Retail investors might not have to report short sales at the end of the trading day.
What is Short Selling?

Short selling is a trading strategy where an investor sells borrowed shares expecting the stock price to decline in the future. The process involves:

  • Borrowing shares from a broker.
  • Selling them at the current market price.
  • Repurchasing them later (ideally at a lower price).
  • Returning the shares to the lender and pocketing the price difference as profit.

Profit/Loss Mechanism:

  • If the stock price falls, the investor profits from the difference.
  • If the stock price rises, losses can be unlimited, making it a high-risk strategy.

Purpose & Risks:

  • Used for speculation or hedging against market downturns.
  • Regulated by SEBI to ensure market stability and prevent excessive volatility.
EBI may rejig short-selling norms economy