How will the recent SEBI announcements on short selling impact the stock markets in the next few trading sessions?

There were strong expectations that the regulator may look at shutting the market for a few days and also ban short selling to put a limit on the market fall. However, the regulator has ruled out any closure of market. In the case of short selling, the government has not imposed any ban but it has surely made life a little more difficult for the short sellers. Here how.

· SEBI has restricted short selling by investors, including foreign portfolio investors and mutual funds to reduce speculative positions in the market.

· There will be no forced square off in the market but lower market wide position limits (MWPL), such trades would be constrained.

· SEBI has announced cutting the market-wide position limit on F&O stocks by 50% to avoid unnecessary speculative build up in the markets.

· In addition, SEBI will also raise cash market margins to 40% in a phased manner. The proposed margins would only be applied in the cash market and may be applicable for a period of one month.

· Existing positions are likely to be up against 2 challenges. Firstly, they may have to liquidate some of their positions to make good the margins or they might need additional margin money to be brought in increasing the capital cost.