What changed
RBI introduced intra-day short selling of central government dated securities for scheduled commercial banks (excluding RRBs and LABs) and primary dealers. Previously, only sale of a security already contracted for purchase was allowed. Now outright sale without ownership is permitted, subject to same-day cover and strict limits.
What it means for you
Banks and PDs gain a new tool for liquidity management and trading flexibility in the G-sec market, but face tight operational discipline. The 0.25% position cap and mandatory NDS-OM execution reduce systemic risk. Failure to cover by end of day is treated as SGL bouncing, inviting disciplinary action. Institutions must invest in real-time monitoring systems.
What you must do
- Draft and get board approval for an intra-day short sale policy covering risk limits, aggregate nominal limits, internal controls, and violation procedures.
- Send a copy of the approved policy to RBI's Internal Debt Management Department (IDMD) for prior information.
- Ensure all short sale transactions and cover trades are executed only on the NDS-OM platform.
- Put in place a system to detect violations immediately, within the same trading day; if not possible, do not undertake short sales.
- Report monthly to IDMD the daily security-wise maximum intra-day short position using the prescribed format.
Who it affects
All Scheduled Commercial Banks (excluding RRBs and LABs), Primary Dealers (PDs), Gilt Account Holders (GAHs) under CSGL facility (prohibited from short selling)
What happens if a short position is not covered by end of day?
It is treated as an instance of 'SGL bouncing' and will attract disciplinary action as prescribed for SGL bouncing, plus any further regulatory action deemed necessary.
Can we short sell any government security?
Only Central Government dated securities are eligible. The short position at any point must not exceed 0.25% of the outstanding stock of that security.
Do we need board approval before starting intra-day short selling?
Yes. A written policy on intra-day short sale, approved by the Board of Directors, must be in place. A copy must be sent to RBI's IDMD for prior information.