PSE may introduce short selling to the market

MANILA, Philippines — The Philippine Stock Exchange (PSE) will soon introduce a short selling facility to the stock market to support its securities borrowing and lending program.

The Securities and Exchange Commission (SEC), the corporate regulator, has approved the PSE’s plan.

This would be the first time the PSE is allowing such a facility in the market.

“Since this is the first time we are introducing short selling, our guidelines were crafted with the goal of ensuring that short selling transactions are transparent and effectively monitored. Even with a limited number of eligible securities and a cap on short interest to begin with, we believe that the ability to take short positions will further spur trading activity and attract more investors to our market,” PSE president Ramon Monzon said.

In industry parlance, short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. In some instances, short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.

Monzon said short selling is in place in several exchanges and is utilized by investors as a hedging mechanism.

“We are grateful to the SEC for approving the guidelines for short selling. We are optimistic that this facility will lend support to our securities borrowing and lending program and help improve liquidity in our market,” Monzon said.

The approved implementing guidelines for short selling transactions include provisions on eligible securities, procedures for short selling transactions, and the execution of short selling orders, among others.

As part of the rules, the PSE said that in the case of eligible securities, members of the PSE index (PSEi) and exchange traded funds are the only securities considered as eligible for short selling transactions.

 “For any eligible security, only 10 percent of its outstanding shares can be shorted. The limit acts as a safeguard for the orderly conduct of short selling activities, while still providing ample room for price discovery,” the PSE said.

Trading participants will have to ensure that the client has entered into the necessary securities borrowing arrangements prior to entering a short selling order.

Such borrowing arrangements must adhere to existing SEC, PSE and Bureau of Internal Revenue regulations governing securities borrowing and lending.