Challenges seen in new short-selling rules

Challenges seen in new short-selling rules

The coming short-selling reporting requirements on the Singapore Exchange (SGX) could pose qualitative and operational challenges when they take effect in March, complicating the expected benefits of greater transparency, market stakeholders have said.

Starting March 11, brokers who enter a "sell" order on SGX must declare whether the shares being offered are short, or not owned by the seller. This includes both covered shorts, in which the seller has already secured those shares by borrowing, for example, and uncovered shorts, in which the seller has yet to arrange for possession of those shares.

SGX will publish the data every day, showing the volume and turnover of shorts on an aggregate basis for every stock listed on the exchange. It said in practice guidance on its website: "SGX's trading members must put in place systems and procedures to collect such 'sell' order information from investors."

But something as simple as declaring whether a trade is short can be deceptively complex when it comes to implementation.

First of all, investors have to figure out exactly what defines ownership of shares. For example, what if the investor has bought the shares but has not taken delivery of said shares?

(The exchange says such shares will count as owned by the investor.)

Or what if the investor has an outstanding, unfilled "buy" order at the time of placing a "sell" order?

(To this, SGX says unfilled "buy" orders do not count as part of the investors' existing holdings.)

Maybank Kim Eng Securities chief executive Tan Pei-San, who also raised concerns for certain institutional investors, said implementation will be "quite challenging".

"It involves some modifications to trading systems to allow clients to tag a trade as 'short'," he said.

"More significantly, it should entail some changes to the way clients operate and trade the markets. The reporting is on a per-trade basis, not a net basis, which may pose issues for institutional trading desks and high-velocity traders," he added.

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