The Securities and Exchange Board of India (Sebi) will soon review the short-selling, and securities lending and borrowing mechanism (SLBM) frameworks, marking the first overhaul in nearly two decades.
“This (SLBM and short-selling) remains significantly underdeveloped as compared to other jurisdictions,” said Sebi chief Tuhin Kanta Pandey at the CNBC Global Leadership Summit on Friday. “We will soon form a working group to comprehensively review short-selling and the SLBM frameworks.”
Sebi aims to better interlink the cash equities and derivatives markets, an objective that regulators worldwide have pursued to ensure efficient price discovery and reduce settlement stress.
An active SLBM serves both sides of the trade, said Pandey. “From a borrower’s perspective, it facilitates the settlement of securities sold short, while lenders can earn a fee on their idle securities.”
Industry participants and exchanges have for years flagged structural constraints in India’s SLBM, such as limited stock availability, operational bottlenecks, and conservative risk-management norms that keep borrowable supply low.
Sebi also plans to introduce a closing auction framework. It is a process for determining a stock’s final closing price at the end of the trading day, used by stock exchanges to consolidate buy and sell orders into a single, fair price.
It aims to reduce end-of-day volatility, improve price discovery, and help large investors execute trades more easily, and it often involves a dedicated, structured session after continuous trading ends.
“We are also committed to introducing closing auction frameworks soon, aligned with other global jurisdictions, but suitably designed for our requirements,” said the Sebi chairperson. “We are focused on deepening our cash equities market to spur capital formation.”
Listing obligations
Beyond trading mechanics, the Sebi chief said the regulator will undertake a comprehensive review of the listing obligations and disclosure requirements (LODR), 2015, and settlement regulations.
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, mandate listed companies to meet specific corporate governance standards and make timely, transparent disclosures to the public and shareholders.
“We are soon going to take up a similar comprehensive review exercise for LODR 2015 and settlement regulations,” he said.
Sebi also addressed the angst among asset management companies (AMCs), distributors and brokers about the suggested overhaul of the mutual fund regulations, which could potentially dent their top lines.
“I think let us not speculate. Let’s see the sell-side research if there is a problem which will happen there, and we would take cognisance of different rationales to do that,” said Pandey, adding that the aim is to increase unique investors in the country while also considering the industry’s point of view.
On speculation around weekly expiry, Pandey indicated that Sebi was examining market data and would act through consultation papers if necessary.
“The certainty currently is that it (weekly expiry) is on. And it is working. Next time, if we have to take any further steps, we will come out with a consultation paper,” he said.
On foreign portfolio investments, Pandey downplayed concerns about outflows, pointing to strong domestic participation.
“We are now much stronger in terms of our domestic flows. 18% of listed companies is owned by individuals today. So, foreign investors in fact are now a little bit subordinate to the domestic,” said the Sebi chief.
