SEBI Chairman Tuhin Kanta Pandey announced a comprehensive review of India's short-selling and securities lending frameworks during the ET Now Market Summit on June 12, 2026. The core objective is to nearly double the number of stocks available for borrowing, expanding far beyond the roughly 224 futures and options-eligible stocks that currently dominate the lending pool. As per Reuters, SEBI aims to make it easier for investors to short stocks by relaxing eligibility criteria and cutting collateral requirements. The proposed changes would open up most stocks to covered short selling for both retail and institutional investors, with naked short selling remaining firmly off the table and mandatory delivery obligations staying intact.
The National Stock Exchange, which accounts for about 95% of India's cash equities market, currently has 2,600 companies listed, but only 176 are currently eligible for borrowing and lending. According to Reuters, this represents a significant constraint on short-selling activities in the Indian market. The proposed changes would nearly double that number, with the only exclusions being stocks in the trade-to-trade category, which are already subject to tighter settlement rules. By expanding the borrowable stock universe, SEBI is essentially trying to strengthen the connection between cash and derivatives markets. The existing SLB mechanisms have been largely offline and chronically underutilized, with infrastructure existing on paper but friction discouraging most participants.
Details are likely to be finalised by the end of this year, with sources indicating that collateral requirements might be cut. In India, the amount of collateral needed under borrowing and lending rules can be as high as 130%, while in the U.S. and Europe, the amount is around 100%. The exact percentage reduction has not been specified, but the plans to nearly double the pool of stocks eligible and to cut collateral requirements have not previously been reported. The timeline for implementation remains uncertain, as SEBI has announced a review rather than final rules. A representative for SEBI did not respond to requests for comment.
The changes come as India's economy has grown at a rapid 6-7% for the past 10 years excluding the pandemic, with the market value of National Stock Exchange shares surging from about $1 trillion a decade ago to over $5 trillion now. However, growth in India's derivatives market — the world's largest — has been even bigger, with capital deployed in derivatives about three times that of the cash market and gross contract value nearly 500 times larger. Nearly 90% of retail investors trading derivatives make losses, according to SEBI, with derivatives trading seen as far more risky due to leveraged contracts and theoretically unlimited losses. Zerodha co-founder Nithin Kamath has been among the prominent voices arguing that restrictions on short selling actually distort pricing, with overvalued stocks staying overvalued longer than they should when only long positions are allowed.
