SEBI has begun a formal review of short-selling and securities lending rules that could expand covered shorting beyond the current F&O-linked stock pool while keeping naked short sales banned.
India's market regulator has begun a broader review of short-selling and securities lending and borrowing rules that could widen the pool of stocks available for covered short selling well beyond the current futures-and-options-linked universe. SEBI Chairman Tuhin Kanta Pandey said on June 12, 2026 that the review is aimed at expanding borrowable securities from a market where activity has been concentrated in roughly 224 F&O-eligible stocks and the lending mechanism has remained underused. The review builds on discussions that began in 2025 about easing restrictions on short selling outside the derivatives segment. The proposed framework would allow both retail and institutional investors to short most stocks as long as shares are borrowed in advance, while keeping naked short selling prohibited and preserving India's delivery-based settlement requirements. Stocks in the trade-to-trade category would remain excluded. The move fits a broader effort to deepen India's cash equities market and reduce frictions in market infrastructure. Supporters of broader short selling, including Zerodha co-founder Nithin Kamath, argue that allowing investors to bet against stocks can improve price discovery by helping overvalued shares adjust more quickly. SEBI is also examining related market-modernization measures including tokenization of corporate bonds and bond index derivatives, though no implementation timeline has been set for the short-selling review.