SEBI to Review Short Selling and SLB Frameworks for Market Enhancement

Markets regulator SEBI plans a comprehensive review of short selling and Securities Lending and Borrowing (SLB) frameworks, aiming to boost efficiency and investor participation. The move, as confirmed by SEBI Chairman Tuhin Kanta Pandey, seeks to address long-standing structural limitations and align the Indian securities market with global standards.

Framework Overhaul for Short Selling and SLB Mechanism

SEBI's upcoming working group will examine dated regulations on short selling, first introduced in 2007, and the SLB framework that began in 2008. These models, though revised sporadically, still lag behind global mechanisms. 

Under SLB, investors can lend shares from their demat accounts to others for a fee, executed via the exchange and secured by the clearing corporation. This generates passive income and enhances market liquidity, especially for short sellers and settlement demand.

Growing Participation from Domestic Investors

Pandey highlighted the growing role of domestic players, with individual investors now holding nearly 18% of shares in listed firms. This marks a significant evolution, as robust domestic flows begin to complement the once-dominant Foreign Portfolio Investors (FPIs), who still control around $900 billion in Indian market capitalisation. Despite recent FPI outflows, the resilience of India's markets remains strong due to diversified and growing participation.

Read More: SEBI Chief Calls for Stronger Risk Controls Amid Rise in Algo, HFT Trading!

Ongoing Policy Reviews Beyond SLB and Short Selling

Alongside the SLB and short-selling refresh, SEBI is also reviewing other major regulatory frameworks. These include the Listing Obligations and Disclosure Requirements 2015 and settlement regulations. Reviews of mutual fund and stockbroker rules are already underway, reflecting a broader agenda to modernise market laws in line with contemporary needs.

SEBI’s Data-Driven and Consultative Approach

Pandey stressed that SEBI’s regulatory pathway will remain calibrated and evidence-based. No abrupt changes are intended, with future market adjustments expected to emerge from deep consultation. While speculation around weekly options expiry persists, SEBI has not confirmed any immediate decisions, keeping stakeholder confidence intact.

Conclusion

SEBI's plan to overhaul the short-selling and SLB frameworks indicates a strategic initiative to build a more robust, transparent, and efficient market infrastructure. This shift is expected to attract greater participation and align domestic practices with international benchmarks.

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