The Philippine Stock Exchange secured the green light from the Securities and Exchange Commission to introduce short selling in the local stock market.
Short selling pertains to the sale of a security that is not owned by the seller, but will be settled by the delivery of borrowed securities. This benefits the investor by selling borrowed securities at a time when prices declined, and buying securities at a lower price in the future.
“We are grateful to the SEC for approving the guidelines for short selling. We are optimistic that this facility will lend support to our securities borrowing and lending program and help improve liquidity in our market,” said PSE president and chief executive Ramon Monzon.
The SEC-approved guidelines for short selling transactions include provisions on eligible securities, procedures for short selling transactions and the execution of short selling orders, among others.
The guidelines state that members of the PSEi and exchange-traded funds are the only securities considered eligible for short-selling transactions.
For any eligible security, only 10 percent of outstanding shares can be shorted. The limit acts as a safeguard for the orderly conduct of short selling activities, while still providing ample room for price discovery.
Failure to comply would make the security ineligible until such time the short interest ratio is met.
Trading participants, in executing short selling orders, will have to ensure that the client has entered into the necessary securities borrowing arrangements prior to entering a short selling order.
Short selling transactions are also not allowed during the market’s pre-open, pre-close and run-off phases.
The PSE earlier said it planned to introduce short selling mechanism this year.
“Since this is the first time we are introducing short selling, our guidelines were crafted with the goal of ensuring that short selling transactions are transparent and effectively monitored. Even with a limited number of eligible securities and a cap on short interest to begin with, we believe that the ability to take short positions will further spur trading activity and attract more investors to our market,” Monzon said.
“Once we launch short selling, investors will be able to employ this tool to help them hedge their portfolio risk,” he said.
The PSE outlined activities for various stakeholders in the coming weeks to apprise them of the rules and guidelines for short selling transactions.