All market participants
Secondary market transactions in
Government Securities – Notional Short Sale
In terms of RBI circulars
IDMD.PCD.21/14.03.07/2011-12 dated June 21, 2012, and IDMD.PCD.14/14.03.07/2011-12
dated December 28, 2011 market participants undertaking ‘notional’
short sale are not permitted to use securities from their HTM/AFS/HFT
portfolio for delivery against the short sale.
As announced in paragraph 13 of the Statement on Developmental and
Regulatory Policies, of the fourth Bi-monthly Monetary Policy
Statement for 2017-18 dated October 04, 2017,
it has now been decided that market participants undertaking ‘notional’
short sale need not compulsorily borrow securities in the repo market.
While the short selling entity may ordinarily borrow securities from the
repo market, in exceptional situations of market stress (e.g. short
squeeze), it may deliver securities from its own HTM/AFS/HFT portfolios. If
securities are delivered out of its own portfolio, it must be accounted for
appropriately and reflect the transactions as internal borrowing. All
‘notional’ short sales must be closed by an outright purchase in the
market. It may be ensured that the securities so borrowed are brought back
to the same portfolio, without any change in book value. The short selling
entity must adhere to the extant regulations and accounting norms governing
sale or valuation of securities in its portfolios. The bank may frame a
Board approved policy for this purpose.
3. All other existing terms and
conditions pertaining to the captioned subject remain unchanged.
4. These directions are issued
under Section 45(W) of the RBI Act, 1934.
Chief General Manager