Short selling delayed as readiness of market questioned
MANILA -The Philippine Stock Exchange (PSE) moved the official launch of short selling to Nov. 6 this year, delaying the rollout by two weeks to allow brokers additional time to prepare their systems.
Short selling, a mechanism that allows investors to place bets and profit from a drop in the share price, was supposed to start on Oct. 23, as announced earlier by PSE president Ramon Monzon. This was after the guidelines became effective on Oct. 2.
In a statement on Friday, the bourse said more time was needed by stockbrokers to “prepare and comply with securities borrowing and lending and short selling requirements.”
In the statement, Monzon reiterated: “The implementation of short selling is an important milestone for the Philippine stock market. The ability to take short positions will provide investors with a tool to hedge their investments, which hopefully will help attract foreign investors back to our market.”
“Short selling is also an essential component to our securities borrowing and lending program and should generate increased trading activity as more shares are made available through lending,” he added.
READ: Challenges and opportunities of short selling in PH
Joseph Roxas, president of Eagle Equities Inc., told the Inquirer short selling would be challenging for brokers to implement at a time when trading activity at the PSE remained below prepandemic levels. More education efforts
Small investors
He was also wary about the risks it might pose to small investors and called for more education efforts from the bourse.
“At this time in the market, if you’re short, you’re dead. The [big] companies are buying back shares,” Roxas said.
Companies implement share buybacks to support stocks when they feel these are undervalued. Combined with heavy short selling, this could trigger a sharp price increase or a short squeeze. This is a situation that forces prices higher, causing short sellers to take on heavy losses.
READ: PSE short selling nears reality
“Of course, you don’t want to put in an order where your client loses money because that’s your client. So you have to make sure your client understands all these things,” Roxas said.
According to the PSE, a total of 53 securities will initially be eligible for short selling.
These securities are the constituents of the 30-member PSE index, exchange-traded funds, and companies in the PSE MidCap and PSE Dividend Yield indices.
Meanwhile, the PSE told brokers to “evaluate their preparedness to accommodate SBL (securities borrowing and lending) transactions and short sell orders.”
This may include recertification of their systems to allow proper tagging of short sell orders, execution of securities lending authorization agreements and master securities ending agreements with relevant counterparties.
“In preparation for the short selling go-live date, the Exchange encourages the investing public and market participants to visit the SBL and short selling page on the PSE website (www.pse.com.ph) to learn more about securities borrowing and lending and short selling, including the relevant requirements, forms, documentation and regulations,” the PSE said.
