SEBI said to ease short stocks by nearly doubling those eligible for borrowing

India’s markets regulator SEBI aims to make it easier for investors to short stocks by nearly doubling the number of shares eligible for lending and borrowing and by cutting collateral requirements, two people with direct knowledge of the plans said.

The changes are aimed at boosting the cash equities market and drawing investors away from the country’s far larger derivatives market, which has seen explosive growth but carries far larger risks for retail investors in particular.

Stock scam scandals led India to develop strict requirements for its cash equities market, with rules tightened in the early 2000s and then again in the period 2017 to 2020.

That has meant that while the National Stock Exchange, which accounts for about 95% of India’s cash equities market, has some 2,600 companies listed, only 176 are currently eligible for borrowing and lending.

By nearly doubling that number, Indian authorities hope to include the majority of liquid shares, the people said.

The three main criteria determining eligibility include liquidity, trading volume and the stock’s ability to support exposure to derivatives trading.

For example, a stock must have an average monthly trading turnover of at least ₹1 billion ($10.5 million) over the previous six months and be large enough to support derivatives exposure of at least ₹1 billion across the market. There are also rules relating to how much of a stock should be held by public shareholders.

“Deliberations are on relaxing the two thresholds,” said one of the people, without specifying which thresholds.

The changes are aimed at drawing investors away from the far larger derivatives market