Modified ALBM to come back

MARKET REGULATOR PLANS SYSTEMIC OVERHAUL

The Securities and Exchange Board of India (Sebi) is looking at re-introducing the infamous deferral borrowing and lending mechanisms (known as ALBM on the NSE and BLESS on the BSE), with major modifications. The deferral system was introduced after the markets regulator had banned 'badla' in 1993.

Following the Ketan Parekh-led scam in 2001, the regulator had again scrapped the lending-borrowing mechanism barely six months after its introduction.

On Tuesday, Sebi chairman M Damodaran told Business Standard that the regulator would now put in place a strong lending borrowing mechanism before introducing short selling in the cash segment for institutional investors.

The Sebi chairman also made it clear that short selling was good for growing markets such as India but mentioned that naked short selling should be avoided. Naked short selling was one of the causes for the disaster in stock market in March 2001.

Damodaran said Sebi was now evolving a strong lending borrowing mechanism for institutional short selling.

"We cannot introduce short selling without a lending borrowing mechanism. ALBM was there earlier but the system earned a bad name during the 2001 scam. Let's see what could be worked out," he said.

According to Damodaran, Sebi was in talks with Reserve Bank of India (RBI) for the introduction of short selling for institutional investors.

RBI had questioned the wisdom of permitting foreign institutional investors (FIIs) to short sell in Indian bourses.

"RBI feels that this could be a regulatory hazard. As RBI has guidelines related to the flow of foreign direct investment. Like FIIs might cross the permissible limit owing to short selling in few companies which is difficult to monitor," he said.

However, he maintained that Sebi would not discriminate between FIIs and financial institutions if it introduces short selling.

"We cannot do that. So we are talking to RBI. Side by side a committee is working on a strong mechanism for short selling," he added.

Earlier, Sebi chairman said that Indian bourses would gradually have all the products available globally.