Bursa Malaysia widens short-selling pool

KUALA LUMPUR: Bursa Malaysia has widened the pool of securities available for short selling as it seeks a move to mature market status.

The existence of short selling and securities lending were among the criteria set by index provider FTSE Group for a “Developed” stock market, Bursa acting director of securities market Ong Li Lee told a press briefing yesterday.

The local market had been upgraded to “Advanced Emerging” from “Secondary Emerging” by FTSE in 2011, she added.

As of Monday, the list of stocks eligible for securities borrowing and lending (SBL) has been increased to 171 from 100 previously with the removal of the Securities Commission’s (SC) 100-stock cap.

The list will be reviewed on a semi-annual basis in June and December, resembling the process for the FTSE Bursa Malaysia KL Composite Index, and it may exceed 171 counters if enough stocks meet the criteria, Ong said.

The SC approval included fast entry into SBL eligibility for equities with a large market capitalisation.

The current rules permit institutions, but not retail investors, to participate in SBL and regulated short selling (RSS).

Post-GE13, short-selling activity on Bursa soared in June despite the 100-stock limit to a monthly record of RM293mil from almost zero in March last year.

RSS trades had not surpassed RM100mil between January 2012 and May 2013, save for in April this year when it shot to RM127mil.

The SBL market was more buoyant, with the total value of borrowing and lending reaching RM640mil last month.

To improve transparency, Bursa said it would share the latest 10-day market data on RSS trades on its website.

Short selling was first allowed on Bursa in September 1996 with 50 approved counters, but it was banned in less than a year due to the Asian financial crisis.

RSS and SBL were revived a decade later in January 2007 with 100 stocks, facilitated by the Central Lending Agency model. The over-the-counter market was introduced in August 2009.

Still, market observers said they were doubtful if Bursa’s move to liberalise shorting would take off in a big way.

A fund manager told StarBiz on condition of anonymity that he personally disagreed with the concept because it increased volatility, while the fees earned by borrowers was only attractive to funds with decades-long horizons.

Market players also lamented that the short selling procedures remained cumbersome.

Under the RSS and SBL frameworks, shorting may only be conducted on “approved securities”. Naked, or uncovered, shorts are not allowed.

A short seller must first borrow shares or locate a borrower before he executes a short sale.

The securities can be borrowed either through Bursa’s Central Lending Agency, which charges fees of 2%, or over-the-counter, where fees are negotiated between the borrower and lender.

Short sales, which can only be made on an uptick price (two sen), are not permitted within 21 days after a takeover announcement, or on designated counters.

In addition, the seller cannot be associated with the issuer.