PSE gets SEC approval for short selling

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 (Photo: The Philippine Stock Exchange, Inc./Facebook)

MANILA — The Philippine Stock Exchange, Inc. (PSE) has secured the approval of the Securities and Exchange Commission (SEC) to introduce short selling in the stock market.

Short selling is in place in several exchanges and is utilized by investors as a hedging mechanism.

Short selling is a strategy that seeks to capitalize on an anticipated decline in the price of a security. Short seller is one who tries to sell high and buy low.

“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,” said PSE President and Chief Executive Officer Ramon Monzon.

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.

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.

Meanwhile, in executing short selling orders, 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, Bureau of Internal Revenue (BIR), and PSE regulations governing securities borrowing and lending.

Monzon explained, “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.”

“Once we launch short selling, investors will be able to employ this tool to help them hedge their portfolio risk,” he added.

The PSE has outlined activities for various stakeholders in the coming weeks to apprise them of the rules and guidelines for short selling transactions.