Short-sale of liquid ETFs gets Sebi nod

Marker regulator Securities and Exchange Board of India (Sebi) on Thursday said index exchange traded funds (ETFs) would be eligible for trading in the securities lending and borrowing (SLB) segment. The move would facilitate short-selling in the ETF segment.

Sebi, however, has said only liquid ETFs would be allowed under SLB. “An index ETF shall be deemed ‘liquid’, provided the Index ETF has traded on at least 80 per cent of the days over the past six months and its impact cost over the past six months is less than or equal to one per cent,” the regulator said in a circular.

“Position limits for SLB in respect of ETFs shall be based on the assets under management of the respective ETF,” it added.

Under the SLB mechanism, investors can lend their idle shares to borrowers through the clearing corporation of a stock exchange, to earn interest. The borrowers, on the other hand, can trade, typically go short, in such securities. Short-selling refers to selling of a stock that is not owned by the seller at the trading time.

Sebi further tweaked the SLB framework to allow rollover facility for lenders and borrowers. Sebi has allowed lenders or borrowers of shares to roll over their positions once the tenure of the contract comes to an end.