Do you know that your owned shares can be use to diminishing the value of your share?
The Intermediates authorities are holding the Shares of Investors, they are not the owner of the shares and they have been given authority to lend the shares to borrower (short seller and market manipulators, no genuine investors need this kind of facilities.) by SEBI. (By whose concerns? They are the protectors of the shares; protectors must not act like owner.)
In demat- account system there is no distinctive numbers for share only they give quantity of the share held, in such conditions to lend the share to borrower is absolutely unethical.
SEBI Circular to stock exchanges on dated 21st January 2008 as under
To see original document go to website
http://www.cse-india.com/CSE%20Notices%20&%20Circulars/2008/Notice210108_2.htm
Dated: 21st January 2008
NOTICE
Sub: SEBI Circular on Short Selling & Securities Lending and Borrowing
Members are hereby informed that the Circular No. MRD/DoP/SE/Dep/Cir- 14 /2007
dated the December 20, 2007, issued by SEBI in respect of Short selling and
securities lending and borrowing is attached herewith along with the enclosures.
The contents of the circular are self-explanatory. The detailed modalities
for the same will be intimated in due course.
Secretary
SEBI Circular
Chief General Manager
Market Regulation Department-Division of Policy
E-mail: mdrao@sebi.gov.in
MRD/DoP/SE/Dep/Cir- 14 /2007
December 20, 2007
1. The Executive Directors/Managing Directors/Administrators of all Stock
Exchanges
2. The Chairman and Managing Director, NSDL
3. The Managing Director & CEO, CDSL
Dear Sir / Madam,
Sub:- Short selling and securities lending and borrowing
1. Pursuant to the recommendations of the Secondary Market Advisory Committee
(SMAC) of SEBI and the decision of the SEBI Board, it has been decided to
permit all classes of investors to short sell subject to the broad framework
specified in Annexure-1.
2. In order to provide a mechanism for borrowing of securities to enable settlement
of securities sold short, it has also been decided to put in place a full-fledged
securities lending and borrowing (SLB) scheme for all market participants
in the Indian securities market under the over-all framework of "Securities
Lending Scheme, 1997" of SEBI specified by SEBI vide circular No. SMD/POLICY/SL/CIR-09/97
dated May 07, 1997. Such a regulatory framework shall be subject to the broad
framework specified in Annexure-2.
3. The Stock Exchanges shall issue the necessary guidelines in this regard
and shall put in place systems to operationalise the above mechanisms for
short selling and SLB. The stock exchanges shall also ensure that all appropriate
trading and settlement practices as well as surveillance and risk containment
measures, etc. are made applicable and implemented in this regard.
4. The Stock Exchanges and the Depositories are advised to put necessary systems
in place so as to distinguish the lending and borrowing transactions executed
in the framework specified in the annexure from the normal market transactions
in the demat system.
5. The date of implementation of this circular will be communicated by SEBI
subsequently.
6. The Stock Exchanges and the Depositories are also advised to :
6.1. test the necessary software/systems and remove any glitches in its operation
well before the commencement date to avoid any problems in the live environment.
6.2. make necessary amendments to the relevant bye-laws, rules and regulations
for the implementation of the above decision.
6.3. bring the provisions of this circular to the notice of the member brokers/clearing
members, depository participants and also disseminate the same on their website.
6.4. communicate to SEBI, the status of the implementation of the provisions
of this circular in the Monthly Development Report.
7. This circular is being issued in exercise of powers conferred under Section
11 (1) of the Securities and Exchange Board of India Act, 1992 and Section
19 of the Depositories Act, 1996, to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
market.
Yours faithfully,
S V Murali Dhar Rao
Encl:
Annexure-1 - Broad framework for short selling,
Annexure-2 - Broad framework for securities lending and borrowing
Annexure-1
Broad framework for short selling
1. "Short selling" shall be defined as selling a stock which the
seller does not own at the time of trade.
2. All classes of investors, viz., retail and institutional investors, shall
be permitted to short sell.
3. Naked short selling shall not be permitted in the Indian securities market
and accordingly, all investors would be required to mandatorily honour their
obligation of delivering the securities at the time of settlement.
4. No institutional investor shall be allowed to do day trading i.e., square-off
their transactions intra-day. In other words, all transactions would be grossed
for institutional investors at the custodians' level and the institutions
would be required to fulfill their obligations on a gross basis. The custodians,
however, would continue to settle their deliveries on a net basis with the
stock exchanges.
5. The stock exchanges shall frame necessary uniform deterrent provisions
and take appropriate action against the brokers for failure to deliver securities
at the time of settlement which shall act as a sufficient deterrent against
failure to deliver.
6. A scheme for Securities Lending and Borrowing (SLB) shall be put in place
to provide the necessary impetus to short sell. The introduction of a fullfledged
securities lending and borrowing scheme shall be simultaneous with the introduction
of short selling by institutional investors.
7. The securities traded in F&O segment shall be eligible for short selling.
SEBI may review the list of stocks that are eligible for short selling transactions
from time to time.
8. The institutional investors shall disclose upfront at the time of placement
of order whether the transaction is a short sale. However, retail investors
would be permitted to make a similar disclosure by the end of the trading
hours on the transaction day.
9. The brokers shall be mandated to collect the details on scrip-wise short
sell positions, collate the data and upload it to the stock exchanges before
the commencement of trading on the following trading day. The stock exchanges
shall then consolidate such information and disseminate the same on their
websites for the information of the public on a weekly basis. The frequency
of such disclosure may be reviewed from time to time with the approval of
SEBI.
Annexure-2
Broad framework for securities lending and borrowing
1. The stock exchanges shall put in place, a full fledged securities lending
and borrowing(SLB) scheme, within the overall framework of "Securities
Lending Scheme, 1997" (the scheme), that is open for all market participants
in the Indian securities market.
2. To begin with, the SLB shall be operated through Clearing Corporation/Clearing
House of stock exchanges having nation-wide terminals who will be registered
as Approved Intermediaries (AIs) under the SLS, 1997.
3. The SLB shall take place on an automated, screen based, order-matching
platform which will be provided by the AIs. This platform shall be independent
of the other trading platforms.
4. To begin with, the securities traded in F&O segment shall be eligible
for lending & borrowing under the scheme.
5. All categories of investors including retail, institutional etc. will be
permitted to borrow and lend securities. The borrowers and lenders shall access
the platform for lending/borrowing set up by the AIs through the clearing
members (CMs) (including banks and custodians) who are authorized by the AIs
in this regard.
6. The AIs, CMs and the clients shall enter into an agreement (which may have
one or more parts) specifying the rights, responsibilities and obligations
of the parties to the agreement. The agreement shall include the basic conditions
for lending and borrowing of securities as prescribed under the scheme. In
addition to that, AIs may also include suitable conditions in the agreement
to have proper execution, risk management and settlement of lending and borrowing
transactions with clearing member and client. Given the nature of the client
base, while the major responsibility of ensuring compliance with "Know
Your Client" (KYC) norms in respect of the clients rests with CMs, the
exact role of AIs/CMs vis-à-vis the clients in this regard needs to
be elaborated in the aforesaid agreement between the AI/CMs/clients. In this
regard, there would be one master agreement with two individual parts to the
same. The first part of the agreement would be between
the AIs and the CMs and the second part of the agreement would be between
the CMs and the clients. There would be adequate cross referencing between
the two parts of the agreement so that all the concerned parties, viz., the
AIs/CMs and the clients agree completely and are aware of all the provisions
governing the SLB transactions between them. However, there shall be no direct
agreement between the lender and the borrower. The CM will attach a certified
copy of the first part of the agreement signed with the AI in the second part
of the agreement signed with each client. The model agreements in this regard
would be devised by the stock exchanges.
7. The AIs shall allot a unique ID to each client which shall be mapped to
the Permanent Account Number (PAN) of the respective clients. The AIs shall
put in place appropriate systemic safeguards to ensure that a client is not
able to obtain multiple client IDs.
8. The tenure of lending/borrowing shall be fixed as standardised contracts.
To start with, contracts with tenure of 7 trading days may be introduced.
9. The settlement cycle for SLB transactions shall be on T+1 basis. The settlement
of lending and borrowing transactions shall be independent of normal market
settlement.
10. The settlement of the lending and borrowing transactions
shall be done on a gross basis at the level of the clients i.e. no netting
of transactions at any level will be permitted.
11. AIs would frame suitable risk management systems
to guarantee delivery of securities to borrower and return of securities to
the lender. In the case of lender failing to deliver securities to the AI
or borrower failing to return securities to the AI, the AI shall conduct an
auction for obtaining securities. In the event of exceptional circumstances
resulting in non-availability of securities in auction, such transactions
would be financially closed-out at appropriate rates, which may be more than
the rates applicable for the normal close-out of transactions, so as to act
as a sufficient deterrent against failure to deliver securities.
12. Position limits at the level of market, CM and client shall be decided
from time to time by AIs in consultation with SEBI. To begin with (a) the
market-wide position limits for SLB transactions shall be 10% of the free-float
capital of the company in terms of number of shares (b) No clearing member
shall have open position of more than 10% of the market-wide position limits
or Rs. 50 crore (base value), whichever is lower (c) For a FII/MF, the position
limits shall be the same as of a clearing member (d) The client level position
limits shall be not more than 1% of the market-wide position limits.
13. There shall be no lending/borrowing activity during the periods of corporate
action in the security and shall be disclosed by AI to the market.
14. Any borrowing/lending and return of securities would not amount to purchase/disposal/transfer
of the same for the purpose of compliance with the extant FDI/FII limits and
the norms regarding acquisition of shares/disclosure requirements specified
under the various Regulations of SEBI.
15. Adequate systems shall be put in place by the stock exchanges/Depositories
to distinguish the SLB transactions from the normal market transactions in
the demat system.
16. AIs shall provide suitable arbitration mechanism for settling the disputes
arising out of the SLB transactions executed on the platform provided by them.
17. AIs shall disseminate in public domain, the details of SLB transactions
executed on the platform provided by them and the outstanding positions on
a weekly basis. The frequency of such disclosure may be reviewed from time
to time with the approval of SEBI.
To see original document go to website
http://www.cse-india.com/CSE%20Notices%20&%20Circulars/2008/Notice210108_2.htm