SEC approves rules on SBL, short selling

MANILA, Philippines — The Securities and Exchange Commission has given its green light to the implementing guidelines on securities borrowing and lending  (SBL) and short selling.

SEC chairperson Emilio Aquino said with the implementing guidelines on short selling in place, regulators look forward to more robust activity in the stock market.

“The commission, however, notes that it shall not balk at exercising its authority to suspend or prohibit short selling in an exchange when necessary for the protection of investors,” Aquino said.

Short selling happens when an investor views a security as being overpriced and anticipates that its price will go down. He or she borrows the security from another person and sells it. When the price goes down, he or she buys it back and delivers it to the lender.

As a result, the investor profits from the price difference and the lender benefits from the transaction by receiving fees similar to loan fees and charges.

The SEC en banc approved the guidelines during its meeting last Dec. 17, subject to the adoption of certain amendments.

According to the guidelines, short sale transactions shall be limited to “eligible securities” which shall refer to securities of companies comprising the Philippine Stock Exchange index and exchange traded funds.

Customers are required to execute a notarized undertaking prior to entering a short sale, stating that the customer understands the relevant securities laws, rules and guidelines.

Trading participants have the responsibility to ascertain that the parties have entered into necessary borrowing arrangements prior to entering a short sale transaction.

Among other reportorial requirements are  bi-annual summary reports of outstanding and liquidated SBL transactions and stock returns, and a certification of submission of said reports to the Bureau of Internal Revenue.

Failure to abide by any provision of the implementing guidelines and other related rules may be considered as a violation.