The Bombay Stock Exchange (BSE) will commence retail trading in government securities from tomorrow following a draft scheme which the Securities and Exchange Board of India has circulated in consultation with the Reserve Bank of India (RBI) and the finance ministry.
The markets are, however, unclear on whether short sales will be finally allowed in this segment. At present, RBI does not allow gilts to be sold unless the entity holds such securities at the time of sale.
Hence, intra-day short selling is prohibited. Since the proposed scheme involves gilt trading where all transactions will be netted and settled on delivery versus payment T+3 basis, the system will not be able to prevent intra-day shorting.
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In a rolling settlement, intra-day shorting will necessarily have to be closed and deliveries effected for the net positions. In view of this, intra-day shorting will be permitted on exchanges for all entities subject to the regulation that all transactions will be delivered on T+3 and penalties as applicable will be levied in the event of delivery failures.
Incidentally, the BSE has not set out any capital requirements for its members. Neither has Sebi done so, and officially, the scheme remains a draft. The facility for retail trading will also be available on the exchange