The Adani-Hindenburg fiasco has reignited the debate on ‘short-selling’, as investors lost Rs 10.7 lakh crore in the market hammering after Hindenburg Research released its report on Jan 25.
The crash in the markets has gained SEBI’s attention to ‘short selling’ in the market and will probably look into the factors causing the recent market crash.
The research firm also announced that it is holding a ‘short’ position on Adani Group. Investors have often asked for short-selling to be banned as it has a negative impact on markets.
What is ‘short-selling’?
SEBI refers to ‘short selling’ as “the sale of a security that the seller does not own”, according to a SEBI discussion paper.
The practice of ‘short selling’ is a legitimate investment strategy and is common in most matured financial markets. The investment strategy of ‘short selling’ is not banned in India. However, SEBI Regulations prohibit ‘naked short selling’ (the process of selling shares of investment security that are not owned by the individual) in Indian markets. The regulation by SEBI mandates investors to honour their obligation at the time of delivery.
Derivative products operate within a time span in the Indian markets and individuals have to meet their obligations on or before the "expiry" of the particular product.
The onslaught in the market has garnered the attention of the regulatory authority and comments from it are awaited.
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