Editing by Nathaniel Cajuday

• The Philippine Stock Exchange (PSE) is preparing to introduce short selling a year after closing its trading floor, initially limiting it to the 30 largest stocks in the PSE index.
• To address concerns of misuse, short selling will be limited to 10% of a listed company’s outstanding shares and will only be allowed when a stock’s price is rising.
• The PSE aims to enhance market dynamics, provide investors with more options, and adapt to the post-pandemic environment while staying relevant in the evolving equities market.

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A year after it closed its trading floor, the Philippine Stock Exchange (PSE) said that it is making preparations to introduce the long-awaited concept of “short selling” in the local equities market. Short selling will initially be limited to the 30 largest stocks included in the PSE index. 

PSE Preparations

In a statement, the PSE wrote that to address concerns about short selling’s potential misuse, the country’s national stock exchange plans to limit the short-selling feature to only the 30 largest stocks and to only 10% of a listed company’s outstanding shares at any given time. 

This restriction aims to prevent significant drops in share prices and discourage market manipulation, noting that limiting the available stocks ensures higher liquidity and stability in the market.

Meanwhile, to add an extra layer of security, short selling will only be allowed when a stock’s price is on an uptick. This approach aligns with practices in the United States, where committed short sellers are given the opportunity to participate. 

Additionally, the PSE will prohibit “naked” short selling, requiring sellers to borrow shares from someone else rather than sell shares they do not own.

Furthermore, by cautiously introducing short selling within these parameters, the stock exchange claims to enhance market dynamics and provide investors with more options. 

According to them, the move reflects the PSE’s commitment to adapting to the post-pandemic environment and staying relevant in the evolving landscape of the equities market.

What is Short Selling?

Short selling involves selling borrowed stocks with the expectation that their price will decline, allowing the seller to buy them back at a lower price and profit from the difference. 

Recently, PSE received approval from the Securities and Exchange Commission (SEC) to introduce short-selling.

Short Selling Guidelines

According to the PSE’s Short Selling Rules and Regulations, published in January 2019, the PSE allows short selling for eligible securities, which include PSEi member companies and exchange-traded funds. The eligibility criteria are monitored daily, and any breach of the prescribed short interest ratio leads to ineligibility until the ratio is restored. The PSE publishes the gross short-selling transactions and outstanding short positions of eligible securities on its website daily.

Moreover, short-selling orders are only accepted for eligible securities on the trading system, and only trading participants can enter these orders. Clients must go through their respective trading participants to place short-selling orders. Prior to entering the order, the trading participant must ensure that the client has made the necessary borrowing arrangements for the eligible securities.

Short-selling orders are also not accepted during the pre-open and pre-close trading phases, and they are entered as day orders only. Aggregation of short-selling orders is not allowed, and short-selling orders for the odd lot market and block sales are not accepted.

Lastly, the rules reiterate that trading participants are responsible for all short-selling orders entered or executed on the exchange, whether for their own accounts or for their client’s accounts. Violations of the rules and guidelines related to short selling will be subject to penalties as outlined in the Revised Trading Rules. Trading participants are also obligated to comply with other provisions of the trading rules and may be held liable for any breaches of those rules and regulations.

This article is published on BitPinas: PSE Limits Short Selling to 30 Largest Stocks in Exchange Index Only

Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.

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• Source: https://bitpinas.com/regulation/pse-short-selling-guidelines/