Long and short of a short-sell rule

Long and short of a short-sell rule

SINGAPORE - The Singapore Exchange (SGX) is finally pressing ahead with a proposal, first raised in the aftermath of the global financial crisis 2½ years ago, to make information on short-selling available to the investing public.

Considering this has been a burning issue drawing the close attention of stock regulators in major markets elsewhere, it may come as a surprise the SGX has taken so long to implement it.

But the unprecedented attack by United States short-selling outfit Muddy Waters on agricultural trader Olam International recently suggests that in a highly connected globalised trading environment, SGX-listed companies can expect their fair share of unwelcome visitors bashing down their doors.

In making short-selling information available, the SGX will help to level the playing field and enable management and shareholders to make an informed decision on what to do, if indeed their firms become targets of attack.

Short-selling is a way to profit from a falling share price. A trader sells shares he does not actually own with the aim of buying them later at a lower price and making a profit.

What market regulators are wary of is "naked" short-selling which involves a trader selling a share without holding any scrip. Taken to extremes, it may bust up a bourse's settlement system and cause it to keel over, if huge numbers of naked short-sellers fail to settle their trades.

So, amid the global financial crisis, regulators everywhere took tough action against naked short-selling, as major lenders came under attack from short-sellers.

In Singapore, hefty fines are levied on a failure to deliver scrip. Since its implementation three years ago, traders have been extra cautious on keying in sell orders.

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