SGX will not ban bearish bets, priority is to keep markets accessible
Circuit breakers activated on March 13 by 14 SGX-listed stocks, while only five stocks triggered it on March 16.
Singapore Exchange (SGX) will not restrict bearish bets even as several European exchanges as well as Bursa Malaysia have banned short-selling amid abnormally high market volatility.
And while some trading across various global venues has been intermittently halted in recent weeks due to large sell-offs, SGX says it continues to prefer circuit breakers that merely pause a large upmove or downmove in its securities or derivatives markets for a short period of time.
This allows market participants to take a breath and take stock of the pricing conditions, Michael Syn, SGX's head of equities, told The Business Times. "Our priority is to ensure that our securities and derivatives markets are always available and accessible, so that our clients can continue to manage their investment portfolios during these volatile times."
The exchange has been closely monitoring its securities market, and says price discovery continues to be orderly. It is also working closely with market participants to ensure the financial robustness of the marketplace.
Circuit breaker rules differ for securities and derivatives, but objectives are similar.
For example, in SGX's securities market, if an index stock were to trade down 10 per cent, the circuit breaker will not allow the price to trade any lower for five minutes. But it can trade higher in that time.
"The market is not halted, it is airbagged for a period of liquidity replenishment, before the airbag is released and the market can then continue to match buyers and sellers and engage in price discovery," Mr Syn explained.
"We have seen these airbags activated in some of our benchmark international products."
On March 13, circuit breakers were activated for 14 stocks. On March 16, they were triggered for five stocks.
SGX also believes that short-selling activity - in which traders seek to profit by selling shares they do not own in anticipation that a company's stock price will fall - provides liquidity and price discovery, which market participants require.
Late Monday, the Securities Commission Malaysia and Bursa Malaysia said short-selling will be temporarily suspended until April 30 in a bid to provide "stability and confidence". The ban covers intraday short-selling and restricted short-selling.
Regulators in France, Italy and Belgium last week banned short-selling in some stocks.
France's AMF halted such trades in 92 stocks, while Italy's Consob blocked the transactions in shares of 20 companies and Belgium's FSMA imposed a similar restriction. Spain went further, telling market participants on March 16 that they couldn't bet on share declines for a month. French finance minister Bruno Le Maire said he would like to see that rule extended Europe-wide.
SGX, however, says Singapore already has in place safeguards to target the risks of potential short-selling abuse. A requirement to mark all sell orders as either normal or short has been in place since 2013. The Monetary Authority of Singapore (MAS) has also imposed a requirement to report open short-sell positions.
"These are statutory requirements mandated by the Securities and Futures Act and provide transparency of short-selling activity for all market participants," SGX said last week.
On Friday, Jardine Cycle & Carriage recorded the highest short-selling volume as a percentage of total volume - at 29.3 per cent. It was followed by UOL, Chip Eng Seng and Singtel.
Studies on short-selling bans have been mixed, but there is some evidence that the move actually increases the probability of both default and volatility in the targeted companies. A comprehensive study entitled Short-selling bans around the world: Evidence from the 2007-09 crisis by Alessandro Beber and Marco Pagano showed bans imposed during the crisis are associated with "a statisti-cally and economically significant liquidity disruption... In contrast, the obligation to disclose short sales is associated with a significant improvement in market liquidity".
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