India does not permit naked short selling. SEBI’s short-selling framework states it plainly: all investors are required to mandatorily honour their obligation of delivering the securities at the time of settlement. If you want a cash-market short that survives past the day’s settlement, you need shares to deliver, and SLB is where you get them.
The framework sits in Annexures 3 and 4 of Chapter 1 of the SEBI Master Circular for Stock Exchanges and Clearing Corporations.
How the mechanism works
| Element | Rule |
|---|---|
| Operator | Clearing corporations registered as Approved Intermediaries under the Securities Lending Scheme, 1997 |
| Platform | A screen-based, order-matching platform independent of the normal trading platform |
| Eligible securities | Securities in the F&O segment, plus Group I securities with a market-wide position limit of at least ₹100 crore and average monthly cash-market turnover of at least ₹100 crore over the previous six months |
| Review of eligibility | Half-yearly |
| Contract tenure | Up to a maximum of 12 months, with contracts offered from one day upward |
| Settlement | T+1, independent of normal market settlement |
| Participants | All categories, retail and institutional, accessing through clearing members |
NSE publishes SLB market data and open positions on its securities lending and borrowing page.
The short-interest gap
India has no published short-interest percentage of free float comparable to what US markets carry. The SEBI framework does require brokers to collate scrip-wise short positions and upload them before the next session opens, with exchanges disseminating the consolidated figures weekly. Beyond that, SLB open positions are what practitioners use as a proxy for how heavily a stock is being shorted.
Say that out loud, because it is a proxy and not a measurement. A short expressed through single-stock futures or options never touches SLB. An intraday short that is squared off before the close never touches SLB either. SLB open interest captures one route among several.
Caveats
Availability is not assured. SLB liquidity concentrates in a handful of large names, and for most of the eligible list there may be no lender at any price on the day you need one.
Borrow cost is a real carry that most backtests ignore. A short held for a month pays a lending fee that reduces the return your engine reported, and the fee is set by the order book, not by a constant.
Institutional investors cannot day trade. Their transactions are grossed at the custodian level, which is a structural reason why some short strategies are open to retail intraday and closed to institutions, and vice versa.
Recall and corporate actions interrupt positions. The loan can end before your thesis does, and dividends and other corporate actions during the loan period have to be settled between borrower and lender.
If a backtest shorted a stock without checking whether SLB borrow existed and what it cost, it tested a position you could not have held.