SEC to align with Asian markets on short-selling

The Securities and Exchange Commission (SEC) is aligning the country’s short-selling environment with other markets in Asia to boost the local equities market.

“We are pushing to align the short selling environment with the major Asian markets, which has the potential to promote liquidity, stabilize the market, protect investors, and further unlock the value of shares of Philippine corporations,” SEC Chairperson Emilio B. Aquino said in a statement on Monday.

The commission said it had looked at the adoption or non-adoption of existing practices in other markets to advance short-selling in the Philippines.

Short-selling — or betting on the decline of a stock’s price to make a profit — is allowed in other Southeast Asian countries such as Singapore, Hong Kong, Malaysia, Thailand, and Indonesia.

The SEC said it is looking at requiring the submission of a regular report on activities relating to short-selling and securities borrowing and lending (SBL), and their compliance with existing rules and policies to guide future policies. 

“We will balance our role as regulator and market innovator, imposing the necessary restrictions and safeguards while ensuring that they will not stifle investors and trading participants from fully taking advantage of this trading strategy,” Mr. Aquino said.

Short-selling happens when an investor sells a security that he or she does not own, the SEC explained. It is consummated by the delivery of a borrowed security, “with a commitment to return the borrowed security or its equivalent on a determined or determinable future date.” 

In 2018, the SEC approved the guidelines of the Philippine Stock Exchange (PSE) on short-selling transactions. The rules mandate that only the PSE index and exchange-traded funds are eligible for short-selling. Companies should also maintain a ratio of short interest to outstanding shares of at least 10%.

The SEC also approved the Capital Markets Integrity Corp. (CMIC) implementing guidelines on SBL and short-selling in 2019, which cover the recording of SBL and short-selling transactions on trading participants’ books and records. The guidelines call for trading participants to ascertain transacting parties have entered into the necessary borrowing arrangements prior to entering a short sale transaction.

Meanwhile, the SEC said in a separate statement that there is a need for digital transformation to improve the ease of doing business in the country.

“Over the years, we have adopted — and we continue to explore more — innovations in the way we receive, process and approve applications for company registration and corporate filings, as well as in the way we offer our other services to the public,” Mr. Aquino said during a seminar in Davao City on August 30. 

The SEC said it is focused on digitalizing and streamlining its internal systems and direct interfaces with the transacting public and boosting digital external links with partner agencies and the private sector.

“Our digital transformation has been calibrated and tempered to the requirements of the transacting public and stakeholders,” Mr. Aquino said. “We need to adjust to our customers.” — Revin Mikhael D. Ochave