Short-selling by FIs, MFs allowed from February 1

NEW DELHI: The Securities and Exchange Board of India on Wednesday announced that institutional investors would be permitted to commence short-selling on the bourses from next month.

Short-selling — in effect, selling shares without owning them — was banned in 2001 in the wake of the Ketan Parekh stock market scam. After a six-year gap, the Reserve Bank of India gave the go-ahead to foreign institutional investors (FIIs) earlier this week to enter into this mode of blank transactions on the bourses.

And now it is the market regulator’s turn to permit short-selling by all institutional investors from February 1.

Speaking to newspersons on the sidelines of a conference on corporate governance, organised by the Institute of Company Secretaries of India, here, SEBI Chairman M. Damodaran pointed out that short-selling would be allowed by all institutional investors — both FIIs and domestic entities such as mutual funds. Retail investors are already permitted to short-sell.

Short-selling is being reintroduced with a view to bringing about market stability as investors generally short-sell when they think that share prices have risen too high and will come down in future.

Alongside, Mr. Damodaran also pointed out that SEBI was ready to review the limit of 10 per cent equity stake held by directors or management personnel in a company which is proposed to be brought under the insider trading norms.

“What we have put out yesterday is a paper for discussion. We will get, over the next month or so, views on that. After we take all those views on board, a clear position will emerge,” Mr. Damodaran said. As to whether the 10 per cent stake limit for officers or promoters was too high or low would be finalised after receiving public comments, he said.

To curb insider trading, SEBI on Tuesday suggested that company insiders should surrender profits made in any equity-based securities transactions of the entity if both the buy and sell transactions are entered into within six months of the other.

No dilution of Clause 49

Meanwhile, SEBI on Wednesday ruled out any relaxation in the norms for independent directors on the boards of public sector companies. Noting that good corporate governance norms helped in boosting investor confidence in corporates, Mr. Damodaran said that the Clause 49 norms of the listing agreement were identical for all companies while refuting ONGC Chairman R. S. Sharma’s views that the norms come in the way of a level-playing field between public sector undertakings and private players.

Earlier, the ONGC Chairman had noted that the PSUs were already over-regulated, being accountable to Parliament, the Comptroller and Auditor General of India, the Central Vigilance Commission and now the Right to Information Act.

In the event, he said, SEBI should consider the Irani Committee report and reduce the number of independent directors to one-third of the total board strength for PSUs.