Exploring The Legal Landscape Of Short Selling In Indian Securities Market

Ms. Koninika Bhattacharjee, B.A., LL.B. (Hons.), School of Law, Christ University, Bangalore.

ABSTRACT

Short selling, or shorting, means that investors trade in shares of listed companies that they do not currently own. The investors are borrowing the securities they are trading in now, with the expectation that in future, the price of securities will be bearish, which in turn will earn them profits. There are two main reasons someone might engage in short selling: speculation and risk management. The goal for speculators is to predict when a company’s stock price will fall, usually due to an upcoming earnings announcement or another significant event. They buy the stock, sell it at a higher price, and then repurchase it at a lower cost to return the lender and pocket the profit from the price difference.

This article delves into the intricacies of short-selling regulations within the Indian securities market, examining the regulatory frameworks established by SEBI and RBI. The author provides insight into the various aspects of short selling, including its application in the derivatives market, securities lending and borrowing mechanism, and the Futures market. Furthermore, the article explores the feasibility of short-selling in other entities within the securities market. The author also emphasizes upon the applicability of short- selling provisions in the Companies Act, providing a comprehensive analysis of the prevalent legal landscape.

Keywords: Capital Markets, Securities Regulation, SEBI.