SEBI said to ease short stocks by nearly doubling those eligible for borrowing
The changes are aimed at boosting the cash equities market and drawing investors away from the country’s far larger derivatives market, which has seen explosive growth but carries far larger risks for retail investors in particular
Quick Revision
Prelims-testable facts
- 01SEBI is considering easing short stocks by nearly doubling those eligible for borrowing.
- 02The changes are aimed at boosting the cash equities market and drawing investors away from derivatives markets.
- 03Derivatives markets have seen explosive growth but carry larger risks for retail investors, particularly.
- 04Retail investors are being targeted to move away from derivatives markets due to associated risks.
- 05SEBI's proposed changes aim to increase liquidity in the cash equities market.
- 06The country's derivatives market is significantly larger than its cash equities market.
Trap alerts
- Most people think SEBI's goal is only to reduce risk, but actually it aims to boost the cash equities market and draw investors away from derivatives markets.
- Most people think derivatives markets are safer for retail investors, but actually they carry larger risks.
Mains Practice Question
Critically examine the implications of SEBI's decision to nearly double the number of stocks eligible for borrowing on the Indian cash equities market and its potential impact on retail investors.
250 words
Practice this in the exam hall →Prelims Practice MCQs
SEBI is said to ease short stocks by nearly doubling which group?
- A.those eligible for trading
- B.those eligible for borrowing
- C.those eligible for selling
- D.those eligible for buying
SEBI is easing short stocks by nearly doubling those eligible for borrowing, aiming to boost the cash equities market.
The changes are aimed at drawing investors away from which market?
- A.the country's foreign exchange market
- B.the country's derivatives market
- C.the country's commodities market
- D.the country's futures market
The changes are aimed at drawing investors away from the country's far larger derivatives market, which carries risks for retail investors.
What is a major risk associated with the derivatives market that SEBI aims to mitigate?
- A.high volatility
- B.low liquidity
- C.far larger risks for retail investors in particular
- D.high transaction costs
SEBI aims to mitigate the far larger risks for retail investors associated with the derivatives market.
Consider the following statements regarding SEBI's changes to ease short stocks: 1. The number of stocks eligible for borrowing will be increased by nearly 50%. 2. SEBI aims to draw investors away from the derivatives market and into cash equities. 3. The new rules are designed to reduce risks for retail investors in the derivatives market. How many of the above statements are correct?
- A.Only one
- B.Only two
- C.All three
- D.None
Statement 1 is incorrect because the text states that SEBI will nearly double those eligible for borrowing, not increase by 50%. Statement 2 is correct as per the text. Statement 3 is incorrect because the new rules are actually aimed at boosting cash equities and drawing investors away from derivatives, which carries larger risks, but it's not about reducing risks in derivatives.
Consider the following two statements: Statement-I: SEBI aims to boost the cash equities market through its changes. Statement-II: This is because the derivatives market has seen explosive growth and carries larger risks for retail investors. Which one of the following is correct in respect of the above statements?
- A.Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
- B.Both Statement-I and Statement-II are correct but Statement-II is not the correct explanation for Statement-I
- C.Statement-I is correct but Statement-II is incorrect
- D.Statement-I is incorrect but Statement-II is correct
Statement 1 is correct as per the text. Statement 2 correctly explains why SEBI aims to boost cash equities, which is because of the explosive growth and larger risks in derivatives.