Published September 23, 2008

SGX deters naked shorts with disclosure measures

Dealers laud move, saying it will provide more clarity to the investing public

By LYNETTE KHOO
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(SINGAPORE) To improve transparency and deter abusive naked short-selling, the Singapore Exchange (SGX) will start disclosing information on naked shorts with immediate effect.

From today, SGX will publish the list of buying-in securities and the volume of shares sought at 11am daily. The information will be published on SGXNET and on the SGX website.

SGX will publish the list of securities it bought-in, and the volume and dollar value, at 8.30am the following business day.

These measures are meant to 'enhance existing transparency in the market and deter failed deliveries', SGX said in a statement.

The Central Depository currently has a buying-in process that ensures short positions are covered by the end of the third trading day from the short-sale date, at a price at least two bids higher than the last- traded price. Buying-in takes place from 11.30am every day.

SGX warned market participants against short-selling in the buying-in market or simply put - cumulative short-selling that has the effect of forcing down prices further before SGX buys-in.

'Cumulative short-selling of individual share securities without the discipline of borrowing to cover delivery obligations may threaten the orderliness of our market, with implications for the integrity of the clearing system,' it said.



There will be a penalty of 5 per cent of the value of the failed trade subject to a minimum of $1,000, on top of the current processing fee of $30 per contract for buying-in.

From Sept 25, SGX will punish any failure to deliver shares in the buying-in market with a $50,000 fine and/or disbarment from participating in the buying-in market.

SGX said it will review these measures after a month, and fees will be reviewed from time to time.

The latest move by the exchange comes on the heels of short-selling curbs imposed by regulators in Taiwan, Australia, Ireland and Europe following a ban by the US Securities and Exchange Commission last week. Such bans have since drawn criticism that many hedge funds could be squeezed out of business.

But a draconian curb on short-selling is unlikely, as SGX assured yesterday that trading of stocks has been orderly and settlement has been timely despite current market turbulence and global financial uncertainty.

Dealers yesterday lauded the move by SGX, saying it will provide more clarity to the investing public and deter abusive short-selling from bringing down companies.

'If you ask me 'Should it have been earlier?' my answer is definitely yes,' said DMG & Partners Securities senior dealing director Gabriel Yap.

'The situation we have seen in the US in the past week shows very clearly that naked shorts with the intention of bringing down a company are a very serious thing. The least we can do is to publicise or have greater and more in-depth information pertaining to naked shorts.'

A dealer with a local brokerage said he believes the new measures are aimed at increasing market awareness, akin to those already in effect on the Australian and Hong Kong stock exchanges.

The Australian Stock Exchange discloses both naked and covered short-selling positions, while the Hong Kong bourse collates data on borrowed scrip and releases a summary report twice a day.

'This will give investors some sense of direction on where the market is heading,' the dealer said.