RBI eases rules for short-selling in govt bonds

MUMBAI (Reuters) - The Reserve Bank of India on Thursday eased the rules for short-selling in government bonds, allowing traders to deliver securities from their own portfolio against short sales in "exceptional situations" of market stress.

Until now, the central bank had not permitted government bond market traders to use securities from their own portfolios for delivery against a short sale, forcing them to borrow in the repo market.

"Market participants undertaking 'notional' short sale need not compulsorily borrow securities in the repo market," the RBI said. But it cautioned that securities delivered from traders' own portfolios must be accounted for appropriately and reflect the transactions as internal borrowing.

The RBI said the securities could be delivered from held-to-maturity (HTM), available-for-sale (AFS) and held-for-trading (HFT) portfolios.

It also said that all notional short sales must be closed by an outright purchase in the market.

(Reporting by Devidutta Tripathy and Suvashree Dey Choudhury; editing by Andrew Roche)