Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on April 19, 2018

KUALA LUMPUR: Today marks the fourth day since Bursa Malaysia Securities Bhd officially introduced intraday short selling (IDSS), but not all stockbroking firms are on board yet.

More than a handful of local brokerages contacted by The Edge Financial Daily yesterday said that they had yet to implement a system to offer IDSS to investors.

Responses to when short selling would be made available ranged from “very soon” to as early as next month.

“There’s no rush [to allow IDSS] if brokerages don’t see much commercial gain from it,” said an executive with a local stockbroking firm.

A remisier with a local investment bank highlighted that brokerages may need time to implement guidelines that would ensure adequate checks and balances. One of his concerns included ensuring all intraday short positions can be closed before the end of the trading day.

According to Pong Teng Siew, head of research at Inter-Pacific Securities Sdn Bhd, the change of computer systems to accommodate IDSS would take a significant amount of time.

However, certain trading houses may already have systems supporting short selling in place.

“There’s been no confirmation from management yet, but it shouldn’t take that long as we are among the larger banks that already have a system in place for controlled short selling,” a remisier who declined to be named told The Edge Financial Daily.

Prior to the introduction of IDSS, Bursa Malaysia permitted regulated short selling (RSS), which was limited to licensed proprietary traders only.

As a result of the Asian financial crisis, short selling was banned on Sept 5, 1997.

RSS, starting with only 100 stocks, was reintroduced in 2007.

On Monday, the stock exchange regulator announced that 280 securities had been made available for short selling, a list that will be reviewed every six months.

Apart from including all 30 FBM KLCI constituent stocks, the eligible stocks are mostly large and midsized capitalisation stocks, with the smallest counters having a market value of no less than RM200 million.

A high average trading volume and liquidity are fundamental to stocks that are listed for short selling, explained a remisier who declined to be named.

On top of that, short selling of small-cap stocks makes them prone to excessive speculation, he added.

The move to allow IDSS was announced by Prime Minister Datuk Seri Najib Razak on Feb 6 at the World Capital Market Symposium.

“This measure is part of the exchange’s strategy to boost market liquidity and further improve flexibility for market participants to refine their trading and risk management strategies,” said Bursa chief executive officer Datuk Seri Tajuddin Atan said in a statement on Monday.

Bursa said market controls for IDSS include a suspension of short selling if a stock’s price falls by more than 15% from the previous day’s closing price, or if the gross short selling volume exceeds the daily maximum limit of 3% of outstanding shares per security.

On top of that, Securities Commission Malaysia chairman Tan Sri Ranjit Ajit Singh has stressed that naked short selling — done without borrowed scripts — is not allowed.

 

Education needed for retail investors

Most brokers shared that they have yet to see significant investor interest in IDSS, despite the measure having been announced months ago.

“With any new product, what is needed is the education of investors,” said Woon See Soon, senior general manager at Mercury Securities Sdn Bhd, which offers IDSS.

Frank Lin, a dealer’s representative at Hong Leong Investment Bank Bhd (HLIB), said that they are typically matured and sophisticated investors who engage in short selling, whereas retail investors prefer to take a longer position on counters.

“Market demand [on Bursa Malaysia] is still confined to narrower trading strategies,” he said.

Both HLIB and Inter-Pacific Securities have yet to offer IDSS.

When contacted, Maybank Investment Bank Bhd said that it is in the process of implementing IDSS and that “it will be available soon”.

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