Adopting short selling in the local stock market will boost activity in the Philippine equities market, according to the Securities and Exchange Commission (SEC).
The SEC said it is working to make the regulatory environment more conducive for such transactions — the practice of betting on the decline of a stock’s price to make a profit.
“The SEC has paved the way for short selling in the country by issuing the relevant rules as early as 2018, when it approved the Philippine Stock Exchange (PSE) guidelines on short selling transactions,” it said.
“It has since worked together with the PSE and market participants towards ensuring that they are ready for the implementation of the guidelines,” the SEC added.
In short selling, an investor sells a security that he does not own, borrowing shares owned by others as facilitated by the broker, with a commitment to return the borrowed security or its equivalent on a determined or determinable future date.
Under the guideline, only the top 30 listed Philippine companies comprising the PSE index as well as exchange-traded funds shall be eligible for short selling.
Companies are to maintain a ratio of short interest to outstanding shares of at least 10 percent, the rule states.
The short selling rule is complemented by Capital Markets Integrity Corp.’s implementing guidelines on stocks borrowing and lending (SBL) and short selling, approved in 2019, which govern the recording of SBL and short selling transactions on trading participants’ books and records. – Ruelle Castro
