BURSA MALAYSIA and the Securities Commission Malaysia (SC) tell The Edge that they are looking into the suspected short selling of Xidelang Holdings Ltd (XDL) shares, which caused a sharp fall in price, as well as that of its warrants.
The share price meltdown wiped out over RM300 million in the Chinese shoemaker’s market capitalisation over two days. The stock fell 29.6% and 34% last Wednesday and Thursday, respectively. It closed at 29 sen last Thursday.
According to executives of stockbroking firms, some investors were shorting XDL shares last week on anticipation that the rights shares they subscribed to at 35 sen each would be credited into their central depository account on Jan 27. Because of the T+3 settlement period, they would only have to deliver the scrip on that day if they short-sold on Jan 22. (See story on page one).
The rally over the past two months had sent XDL to an all-time high of 63 sen, nearly double the rights issue price of 35 sen per share. That made the stock a target for short sellers. The cash call was coupled with bonus shares and free warrants.
Surprisingly, Bursa did not query XDL on unusual market activity despite the share and warrant falling like a rock.
It would be interesting to know how the short sellers managed to execute their orders, given that XDL is not on Bursa’s approved list of stocks for regulated short selling.
Wasn’t Bursa’s trading system efficient enough to spot those transactions since short selling without the borrowed securities in hand is prohibited? Are there loopholes in the monitoring system?
Hopefully, Bursa and the SC will get to the bottom of the matter.
This story first appeared in The Edge Malaysia Weekly Edition, on January 27 - February 2, 2014.