Regulator Sebi on Friday said market intermediaries can introduce contracts of different tenures ranging from 1 day to 12 months for short selling based on the requirement of participants. The stock lending and borrowing (SlB) mechanism or short selling was designed to help the borrower to sell the shares he feels are overpriced but are not in his possession.
“AI (Approved Market Intermediaries) can introduce contracts of different tenures ranging from 1 day to 12 months based on the need of the market participants,” Sebi said in a circular. The decision has been taken after taking into consideration views of stock exchanges and other market participants. According to the regulator, the market wide position limit for SlB transactions would be 10 per cent of the free-float capital of the company in terms of number of shares. For clearing member and institutional investor, Sebi said that position limit will be 10 per cent of the marketwide position limit, while the same for client would be one per cent.
Explaining treatment of corporate actions during the contract tenure, Sebi said that dividend amount would be worked out and recovered from the borrower on the book closure/record date and passed on to the lender. With regard to stock split, the regulator said the positions of the borrower would be proportionately adjusted so that the lender receives the revised quantity of shares.