"Restrictions on short-sales would be lifted from July 6. However, while doing so we will ensure that special margins are imposed on volatile stocks," SEBI chairman DR Mehta said. "The stock exchange representatives who met on Thursday felt that in objective it was necessary to define the concept of volatility and also rework the package on margins," Mehta told media persons.

The inter-exchange co-ordination group and the inter-exchange surveillance group of stock exchanges met on Thursday to review the prevailing market situation in light of restrictions imposed on short-sales on June 17, and the imposition of concentrated and incremental margins on carryforward trades.

It was reviewed that the outstanding positions of short-sales and long-purchases have come down substantially and, hence, the time wasripe to remove the restriction on short-sales."Rationalising the margin system and integrating it with the carryforward system is important considering that ultimately the overall market risk is the same," Sebi senior executive director LK Singhvi said. Sebi has appointed a sub-committee comprising representatives of Mumbai, Calcutta, Bangalore, Ludhiana and the National Stock Exchange along with its nominees. The panel will meet on June 29 to decide on various issues related to the margining system and also discuss the feasibility of implementing a uniform settlement all over the nation. "The committee has been set up to recommend to Sebi the additional margin system which could be in place before the removal of restrictions imposed on short sales is implemented," Sebi senior executive director Pratip Kar said.

Mehta also stressed on the need for a balanced margining system which will ensure that the recent mishap that took market participants unaware would not be repeated. The committee's discussion alsobrought to light complexity of the margin system implemented by stock exchanges, which needs to be reviewed with the latest software and an online surveillance system in place. The other highlights of the five-hour meeting were discussions over uniform price caps of a daily price-band of 10 per cent upwards or downwards and a weekly band of 25 per cent. In the case of Videocon International, absence of adequate margining system resulted in continuous hammering by bear operators. Consequently, the stock slipped by 25 per cent in three trading sessions, between June 8 and 10. On a daily basis, margins have to be reviewed, said committee members. Further, according to a committee member, the daily and weekly price bands also needs to be revamped, which probably could be the centre of discussions at the meeting scheduled for next week.

"Sebi is worried about position packaging, while it is only a part of the problem which occurred at the stock exchanges," Bangalore Stock Exchange vice president Jagdish Ahujasaid. He is also a member of the core committee which will meet on June 29. The participants were also reported to have stressed on the need to impose incremental margins to cushion the fall in stock markets on account of bear hammering. The committee also discussed the issue of introducing compulsory demat trading across all the exchanges, which would facilitate rolling settlement.

Insight -- a short-sighted measure goes

The decision by SEBI to withdraw the ban on short sales is an admission from the regulatory authorities that they were wrong in implementing such a short-sighted measure. The Sebi release claimed that the move brought about stability in the market, which was far from the truth.

The intra-day volatility that sometimes saw the Sensex swing by as much as 400 points caused more harm than good to market participants. The sooner the ban lifted the better. However, the idea of higher and graded margins for volatile scrips on outstanding positions should be strictly implemented sothat regulatory authorities and exchanges do not go in for knee-jerk reactions. There should not be a repeat of the Sterlite, BPL and Videocon International fiasco.