PSE set to allow short selling

MANILA, Philippines — The Philippine Stock Exchange Inc. (PSE), the operator of the local bourse, said short selling could help prop up liquidity in the market.

“In times of a bear market, short sellers will provide additional liquidity. Shares of long-term investors who typically have hold positions, can be unlocked,” PSE chief operating officer Roel Refran said in a briefing on Friday.

Short selling is a facility that would support the PSE’s securities borrowing and lending program.

It is the sale of a security that the seller does not own or any sale of a security that will be settled by the delivery of borrowed securities.

Refran said short selling could be used as a strategy to benefit from an expected future decline in price or to hedge the risk of a long position in a related security.

The Securities and Exchange Commission has already approved the PSE’s plan.

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

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, 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.

Meanwhile, in executing short selling orders, trading participants will have to ensure that the client has entered into the necessary securities borrowing arrangements.

Refran said the launch of short selling is a step toward introducing other hedging instruments such as derivatives.

Short selling enables better valuation of shares and the mitigation of price bubbles.

Monzon said short selling is an integral part of a robust stock market.

The PSE hopes to have the facility in place before the end of the year.