KUALA LUMPUR, Feb 6 — The government’s move to open up short selling of shares to all players could lure new investors and make the Malaysian bourse more “vibrant”, industry players said.
Intraday short selling was previously reserved for a select group of licenced brokers or the proprietary day traders (PDT) because it was deemed to be highly speculative and therefore risky, so opening up the segment can attract more investors to trade in Bursa Malaysia, they added.
“I think the move is much awaited,” analyst with Malacca Securities, Tan Chee Siong, told Malay Mail today.
“That would be a good boost for the market… then [regulators] never allowed short selling here. It was only allowed for a few select licenced dealers. It is definitely welcomed”.
Prime Minister Datuk Seri Najib Razak announced the new policy at the World Capital Market Symposium here as part of a wider liberalisation policy meant to boost Malaysian equities.
“It will definitely give the Malaysian stock market more liquidity,” Nazarry Rosli, analyst with Jupiter Securities, told Malay Mail in an immediate response to the new policy announcement.
“Short-term traders in particular would welcome the move,” he added.
Short selling is essentially the sale of stocks not owned by the investor.
The seller will profit from selling the stocks and buying them back at a lower price. Intraday short selling means the transaction — selling and buying -— must be done by the end of a trading day.
Short selling was banned during the height of the Asian financial crisis in 1998. Then prime minister Tun Dr Mahathir Mohamad blamed the recession that hit the country on excessive short selling by unscrupulous investors.
The prohibition was reportedly lifted in 2007 but only PDTs were allowed to short as a safeguard.
Tan said the strict existing compliance requirements for regulated short selling (RSS) will likely remain even as trading in this segment is liberalised, which could help maintain confidence in the Malaysian bourse.
“That is why only a certain category of stocks can be shorted like those with good liquidity… otherwise it could be quite risky if it’s not controlled properly,” he said.
Bursa Malaysia executive vice-president of market development of securities market Shahrul Amry Abd Malek told theSun daily last year that Bursa Malaysia has robust compliance requirements for RSS to protect investors.
Among them is a stringent eligibility criteria for stocks that can be shorted. Shares under this category will require a daily market capitalisation of not less than RM500 million for at least three months and at least 50 million units in public float.
The stocks must also have a monthly average traded volume of at least one million units for a year.
Securities Commission chairman Ranjit Ajit Singh speaking to the press at the symposium earlier today echoed Shahrul’s confidence in the RSS, saying there are sufficient safeguards to ensure intraday short selling.
“Many countries have similar frameworks like this, but you are still required to have a borrowing arrangement in place. We do not allow naked short selling at all,” Ranjit said.
