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SEBI policy on short selling soon

But the market regulator refuses to divulge whether short selling by institutional investors will be allowed.

india Updated: Aug 07, 2006 20:13 IST

Market regulator SEBI on Monday said it would soon come out with a policy statement on short selling of shares.

"You will soon see a policy statement (on the issue)," SEBI Chairman M Damodaran told reporters after inaugurating a week-long Independent Directors' Programme for senior officers of armed forces, organised by the Management Development Institute.

Damodaran, however, refused to divulge whether such a statement will allow short selling by institutional investors or not.

He said unless all issues relating to short selling are addressed, a decision could not be announced. All those concerned with the matter are being consulted, Damodaran added.

Short selling -- selling stocks without actually owning them or selling them by delivering borrowed stocks -- is currently permitted for retail investors.

The issue of allowing institutional investors to short sell is linked to the programme for stock lending and borrowing.

The stock lending and borrowing programme was in vogue for institutional investors until 1997 under FERA, which was replaced with FEMA in 1999-2000. Now the issue is whether proposed lending and borrowing programme could be allowed for foreign institutional investors under FEMA.

When asked whether there were instances of delisting of any company in case it had not complied with clause 49 of the listing agreement, he said: "Not to my knowledge."

Defending the numerical strength of independent directors under clause 49, he said it was thought fit to have at least 50 per cent of the total board members as independent in case both chairman and CEO of a company were the same person.

"(This way), numerically, at least views of non-promoters would be articulated at the board meetings," he added.

Under clause 49 of the listing agreement, which came into force from the beginning of this calendar year, at least one-third of the board members have to be independent in case chairman and CEO are two different persons.

Damodaran advised armed forces officers not to hurriedly accept the requests of companies to be independent directors once they are superannuated and ensure that they are getting into "right" companies.