Short Selling in India: The History, Current Scenario, and Way Forward
Keywords:
COVID-19, Harshad Mehta, Ketan Parekh, SEBI, Short SellingAbstract
Short selling refers to the sale of securities which are borrowed in essence and the seller does not own them at the time of selling. The seller sells the securities when their price is high and then buys them back when their prices drop, making a profit from the price difference. Traditionally, it has been viewed as a boon by investors and regulators around the world due to the volatility it infuses into the market. But this perception is changing with the benefits of short selling coming to light. Essentially,
short selling aids in increasing liquidity and determining the price of securities. In India, it has always been viewed with suspicion and reluctance due to the involvement of short selling in various scams. Therefore, in this paper, the position of short selling has been analysed, starting with the beginning of the millennium and how it has shifted in the last decade with changing regulations. In the context of this discussion, several loopholes in the Indian regulation of short selling have been critically examined, and recommendations have been given in a bid to update the regulations in light of the modern changes. The chief arguments of the paper are based on the perception that short selling could be truly beneficial in the development of the Indian securities market, with India becoming an attractive location for investment.
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