The Securities and Exchange Commission is looking at adopting practices in other Asian markets to advance short selling in the local equities market, a top official said Monday.
“We are pushing to align the short-selling environment with the major Asian markets, which has the potential to promote liquidity, stabilize the market, protect investors and further unlock the value of shares of Philippine corporations,” SEC chairperson Emilio Aquino said in a statement.
Short selling is the practice of betting on the decline of a stock’s price in order to make a profit. It involves borrowing shares and selling them at one price, in the hopes of buying the same number of shares at a lower price later to return them to the lender.
The SEC said it also considering requiring the submission of regular report on all short selling and securities borrowing and lending activities and their compliance with current rules and policies, to better guide the SEC on policies on short selling moving forward.
Short selling is allowed in Singapore, Hong Kong, Malaysia, Thailand and Indonesia, among others.
The SEC already approved guidelines that will facilitate the conduct of short selling in the local market, but other issues related to securities borrowing and lending have yet to be resolved before short selling could be implemented.
“We will balance our role as regulator and market innovator, imposing the necessary restrictions and safeguards while ensuring that they will not stifle investors and trading participants from fully taking advantage of this trading strategy,” Aquino said.
The SEC approved in 2018 the Philippine Stock Exchange’s guidelines on short selling transactions, which provided that only the top 30 listed Philippine companies comprising the PSE Index, as well as exchange-traded funds, should be eligible for short selling.
Customers are required to execute a notarized undertaking prior to entering a short sale, stating that the customer understands the relevant securities laws, rules and guidelines.
The Capital Markets Integrity Corp. issued in 2019 the implementing guidelines on SBL and short selling, which involves the recording of SBL and short selling transactions on trading participants’ books and records.