The Reserve Bank of India (RBI) has proposed allowing Urban Cooperative Banks (UCBs) to undertake short sale transactions in Central Government securities under its draft Master Direction on Secondary Market Transactions in Government Securities, 2026.
According to the draft directions, UCBs will be eligible to undertake short sale transactions in Central Government securities, excluding Treasury Bills, in accordance with the RBI’s investment portfolio norms applicable to UCBs.
The draft framework prescribes limits, operational guidelines, reporting requirements, settlement procedures and accounting norms for such transactions. It also requires eligible entities to cover short sale positions within three months from the date of the transaction.
RBI has proposed position limits for short sales based on the type of Government security and has mandated that all short sale transactions be reported and settled through the prescribed market infrastructure.
The proposed Master Direction seeks to consolidate existing RBI instructions relating to secondary market transactions in Government securities, ‘When Issued’ transactions and short sale transactions into a single regulatory framework.
The central bank has invited comments from stakeholders on the draft directions before finalising the framework.
