Business Times - 23 Sep 2008

SGX deters naked shorts with disclosure measures

Dealers laud move, saying it will provide more clarity to the investing
public

By LYNETTE KHOO

(SINGAPORE) To improve transparency and deter abusive naked
short-selling,
the Singapore Exchange (SGX) will start disclosing information on naked
shorts with immediate effect.

From today, SGX will publish the list of buying-in securities and the
volume of shares sought at 11am daily. The information will be
published on
SGXNET and on the SGX website.

SGX will publish the list of securities it bought-in, and the volume
and
dollar value, at 8.30am the following business day.

These measures are meant to ‘enhance existing transparency in the
market
and deter failed deliveries’, SGX said in a statement.

The Central Depository currently has a buying-in process that ensures
short
positions are covered by the end of the third trading day from the
short-sale date, at a price at least two bids higher than the last-
traded
price. Buying-in takes place from 11.30am every day.

SGX warned market participants against short-selling in the buying-in
market or simply put - cumulative short-selling that has the effect of
forcing down prices further before SGX buys-in.

‘Cumulative short-selling of individual share securities without the
discipline of borrowing to cover delivery obligations may threaten the
orderliness of our market, with implications for the integrity of the
clearing system,’ it said.

There will be a penalty of 5 per cent of the value of the failed trade
subject to a minimum of $1,000, on top of the current processing fee of
$30
per contract for buying-in.

From Sept 25, SGX will punish any failure to deliver shares in the
buying-in market with a $50,000 fine and/or disbarment from
participating
in the buying-in market.

SGX said it will review these measures after a month, and fees will be
reviewed from time to time.

The latest move by the exchange comes on the heels of short-selling
curbs
imposed by regulators in Taiwan, Australia, Ireland and Europe
following a
ban by the US Securities and Exchange Commission last week. Such bans
have
since drawn criticism that many hedge funds could be squeezed out of
business.

But a draconian curb on short-selling is unlikely, as SGX assured
yesterday
that trading of stocks has been orderly and settlement has been timely
despite current market turbulence and global financial uncertainty.

Dealers yesterday lauded the move by SGX, saying it will provide more
clarity to the investing public and deter abusive short-selling from
bringing down companies.

‘If you ask me ‘Should it have been earlier?’ my answer is definitely
yes,’
said DMG & Partners Securities senior dealing director Gabriel Yap.

‘The situation we have seen in the US in the past week shows very
clearly
that naked shorts with the intention of bringing down a company are a
very
serious thing. The least we can do is to publicise or have greater and
more
in-depth information pertaining to naked shorts.’

A dealer with a local brokerage said he believes the new measures are
aimed
at increasing market awareness, akin to those already in effect on the
Australian and Hong Kong stock exchanges.

The Australian Stock Exchange discloses both naked and covered
short-selling positions, while the Hong Kong bourse collates data on
borrowed scrip and releases a summary report twice a day.

‘This will give investors some sense of direction on where the market
is
heading,’ the dealer said.