PSE asked to speed up short selling launch
It is about time for the Philippine capital market regulators to allow short selling to help stock traders hedge risks and protect retail investors from manipulation, a capital market veteran said.
“It is overdue. It is high time that we allow short selling in our market,” AB Capital Investment Corp. chair and president Antonio Jose Periquet Jr. said on Tuesday in an event hosted by Shareholders’ Association of the Philippines.
“I don’t know what PSE (Philippine Stock Exchange) has been waiting for,” he added.
In short selling, investors bet that the price of a certain stock will decline to make profits. As such, they can take a “sell” position without having to “buy” first. What they do is borrow stocks and sell them in the open market; they buy the shares back for less after the price falls, earning from the difference.
The PSE and the Securities and Exchange Commission have both approved the basic framework for short selling but the local bourse has yet to launch it.
This mechanism allows investors to do paired trading in order to mitigate trading risks, Periquet explained.
“If you don’t want to take a market risk—you just want to bet, for instance, that PLDT will outperform Globe in the long run or vice versa—you end up buying PLDT and shorting Globe or vice versa,” he said, noting that investors would make money either way.
“So that is what you called a paired trade and you need to be able to short sell to do that,” he added.
Curb stock manipulation
In addition, short selling activities could also act as a “counterweight” to market manipulators who drive stock prices with news that excites investors, he pointed out.
“If short selling were allowed, the fundamental investor can bet against it and control and limit the extent to which the stock is manipulated upwards. Because remember, it is the helpless public that is victimized by these manipulators,” Periquet explained.
From the perspective of the regulators, the capital market expert said that short sellers could be an ally, because they have the incentive to monitor all the stocks in the market.
He explained that a short seller was motivated to “look for fraud or earnings that are not real and then he exposes them so he can make a buck on his investment.”
“That’s actually something a regulator should welcome and that will help protect the retail investors,” he added.
Brokers could also benefit from the potential increase in market volume, Periquet said.
