PSE eyes short selling option to entice foreign funds to stay

MANILA, Philippines — The Philippine Stock Exchange Inc. (PSE) is pushing to introduce short selling in the market to beef up liquidity amid the prevailing volatility.

PSE president and CEO Ramon Monzon said short selling would encourage investors to return to the market.

“If we pass that, it’s the first step in trying to get foreign investors back into the market,” Monzon told The STAR.

Cumulative net foreign buying over the past 10 years – which reached as high as P300 billion in early 2015 – have all been sold out as of end-2022, data from COL Financial showed.

“You have to look at short selling not as a speculative tool. It’s really a hedging tool because if we have short selling, the foreign investors with investments here, for one reason or another, they don’t have to sell out, they can hedge. So the funds will not go out (of our market). This is why we keep pushing for this,” Monzon said.

Short selling, which is still awaiting the approval of the Securities and Exchange Commission (SEC), refers to selling a security whose price is deemed to fall.

A short position is generally the sale of a stock one does not own. Investors who sell short believe the price of the stock will decrease in value, according to industry parlance.

Simply put, short selling allows investors and traders to make money from a down market.

“Those with a bearish view can borrow shares on margin and sell them in the market, hoping to repurchase them at some point in the future at a lower price,” according to Investopedia.

This means that investors can borrow stocks and sell them in the open market. They then buy the shares back for less after the price falls, allowing them to earn from the difference.

For years now, the PSE has been pushing to introduce short selling into the market, but the SEC has yet to approve it.

Monzon said the PSE is still working with the SEC for one last issue, which is to have the PDTC or the Philippine Depository and Trust Corp. accredited as a central borrowing and lending unit.

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