Institutions may get to sell short this year: Sebi

The Securities and Exchange Board of India (Sebi) today outlined its agenda for the new year that will include allowing short selling of securities by institutional investors, establishing a stock exchange for small and medium enterprises, implementing the recommendations of the RH Patil committee on a corporate bond market and removing bottlenecks for the launch of real estate mutual funds.

The capital market regulator would also actively encourage trade bodies to act as self-regulatory organisations and reduce the time taken for companies to tap the capital market through public issues without lowering regulatory standards, Sebi Chairman M Damodaran said.

Other issues on Sebi's agenda were regulations in the matter of delisting of securities whereby reverse book building was proposed to be replaced with a fixed price formula and review of governance structure of stock exchanges and clearing corporations and depositories for necessary control and oversight, according to G Anantharaman, whole-time member of Sebi.

Speaking at the Federation of Indian Chambers of Commerce and Industry's annual capital market conference here, Damodaran said there was a recognition that short selling was inevitable for the Indian stock market.

However, this should be accompanied by a strong stock lending and borrowing mechanism, he said. "We are nearly there. We hope it can come through in 2007," he said.

Short selling allows sale of securities that are not owned by the holder and, typically, a trader does this on the expectation that the price of these shares will fall.

On the corporate bond market, the Sebi chief said: "We have started on this and we are implementing the recommendations of the RH Patil committee. You will see action, you will see numbers and you will see results."

Another area of focus is setting up a stock exchange for small and medium enterprises.

Damodaran said a Sebi committee was looking into this and one way could be "reinventing" the Over the Counter Exchange of India (OTCEI).

The Sebi chief pointed out that the proposed SME stock exchange would not be allowed to lower regulatory standards, keeping in mind the "vanishing companies of 1990s". "We cannot forget that (vanishing companies). We do not want a replication of that (through the SME exchange)."

The selling proposition of the SME exchange would not be regulatory arbitrage, even as it would give a platform for today's SMEs, over a period of time, to graduate into big corporations of tomorrow, Damodaran said.

On the mutual fund industry, he said the sector would see newer products. He said Sebi was in the process of addressing the minor "bits and pieces" issues that were coming in the way of the launch of real-estate mutual funds.

Modalities pertaining to valuation, accounting norms and others were being worked out in consultation with the Institute of Chartered Accounts of India and mutual funds and other bodies, said Anantharaman, who spoke at a later session.

Sebi's approach to regulation was a consultative approach, Damodaran said and asked all concerned to "share their concerns and thoughts" to help the regulator in framing better rules for the capital market.