16th August 2006: The move to allow institutional investors to short sell securities might be delayed as there are perceptible differences between market regulator SEBI and the Reserve Bank on whether to allow FII right from the start.
While SEBI wants to adopt a big bang approach by allowing all institutional investors to short sell right from the beginning, the Reserve Bank favours a gradual process starting with domestic institutional investors, official sources said.
Technical committee of SEBI and RBI will meet soon to thrash out their differences, the sources said. Short selling, that is selling securities without owning them, is presently allowed only for retail investors.
SEBI is of the view that all institutional investors should be allowed from the beginning so as to have a deep and wide market. Domestic institutional investors were not large enough for a significant economies of scale to operate.
The Central Bank is however of the view that permission to short sell should be in a gradual manner starting with domestic institutional investors.
SEBI wants that even if it meant a delay of six months, permission on short selling should not be allowed in a piecemeal manner. It is already nine years since the idea was originally proposed and a few months delay would not make much of a difference, the sources said.
According to the present guidelines, institutional investors like FIIs, mutual funds, banks and insurance companies are mandatorily required to settle on the basis of deliveries of securities owned and held by them.