The Securities and Exchange Commission on Monday bared confidence in the potential of short selling as prominent feature of trading activities in the local equities market.
“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 chairman Emilio B. Aquino said.
The SEC previously paved the way for short selling in the country with the issuance of relevant rules in 2018 when it approved PSE guidelines on short selling transactions.
Short selling is profiting from a drop in the price of borrowed securities and selling it later for less. The SEC as regulator has since worked with the PSE and market participants towards ensuring the market is ready for the implementation of the guidelines.
Recently, the SEC evaluated current practice in other markets to advance short selling in the Philippines. Short selling is allowed in Singapore, Hong Kong, Malaysia, Thailand and Indonesia, among others.
The SEC is also considering requiring the submission of a regular report on all short sales, on securities borrowing and lending activities and market compliance with rules and policies to better guide the SEC in crafting policies moving forward.
“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.”
SEC chairman Emilio B. Aquino
Short selling is the practice of betting on the decline of a stock’s price in order to make a profit. An investor sells a security that he does not own, consummated by the delivery of a borrowed security, with a commitment to return the borrowed security or its equivalent on a determined or determinable future date.
In 2018, the SEC approved PSE guidelines providing that only the top 30 listed Philippine companies comprising the benchmark PSEi, as well as exchange-traded funds, be eligible for short selling.
Companies are required to keep a ratio of short interest to outstanding shares of at least 10 percent at all times. This was followed by the approval of the implementing guidelines on SBL and short selling in 2019 supported by the Capital Markets Integrity Corp.
The guidelines govern the recording of SBL and short selling transactions on trading participants’ books and records. They also ensure that trading participants ensure that parties have entered into borrowing arrangements prior to entering a short sale transaction.
