As announced on Jan 8, with effect from 11 March 2013, SGX will require an indication (marking) of short selling on all securities traded on securities market (Extended Settlement Contracts excluded). All market participants are expected to accurately disclose the nature of their sell orders.

Below are Frequently-Asked Questions regarding this measure.

 

1. What is short selling?

Short selling in respect of securities is the sale of securities that the seller does not own at the time of the sale, short selling may either be: “covered” or “uncovered” (also referred to as “naked” short selling). In “covered” short selling, at the time of the sale, the seller has borrowed the securities or has otherwise made arrangements to fulfil his obligation to deliver the securities. In “uncovered” or “naked” short selling, at the time of the sale, the seller is not in possession of securities or has not otherwise made arrangements to meet his delivery obligation.

2. Is SGX banning short-selling?

No, SGX is not banning short-selling. SGX recognizes that short selling generally plays an important role in markets as it allows for more efficient pricing of securities and facilitates hedging activities.

However, SGX reminds investors that when they intend to make a short sale, they should have arrangements in place to avoid settlement failures. Penalties will be levied for settlement failures under the CDP Clearing Rules.

Abusive short-selling, such as selling accompanied by false rumours designed to encourage others to sell, may also be construed as intent to deceive or manipulate the market and is an offence under the Securities and Futures Act (SFA) and shall be liable on conviction to a fine not exceeding $50,000 or to imprisonment for a term not exceeding 2 years or to both.

3. What are the new measures on marking of sell orders

Marking of sell orders for securities: Brokers may not enter a sell order if the investor has not informed them whether an order is a short sell order (whether covered or uncovered) or a normal sell order. SGX’s Trading Members must put in place systems and procedures to collect such sell order information from investors.

Publication of short selling information: Short selling information on aggregate short sales volume and value for each counter will be published by SGX on its website at the start of each trading day, based on orders marked as short sell executed the previous trading day. Investors can access the report at: www.sgx.com/shortselling from 11 March 2013

4. Which instruments listed on SGX are subject to the requirement for marking of sell orders?

The requirement to mark Short Sell Orders will apply to all securities traded on SGX, including structured warrants and Exchange Traded Funds (ETFs). Extended settlement contracts are not included.

5. Who is subject to the requirement for marking of sell orders?

All market participants, including investors and SGX-ST Trading Members, must mark their sell orders.

Exemption for Market Makers

Presently, market makers, which include Designated Market Makers and such other entities appointed by SGX to carry out a market making function, are not required to mark sell orders of securities for which they are obliged to market make. This is because they may submit sell orders, where they do not own the security to be sold, as part of their market making function.

The exemption does not extend to Trading Members with facilitation desks that provide liquidity to their clients.

6. When will the new measures be implemented?

The measures will be effective from 11 March 2013.

7. Will there be more measures governing short selling in future?

In consultation with the Monetary Authority of Singapore (MAS), SGX will continue to assess the appropriateness of various measures on an on-going basis as part of our responsibility to operate a fair, orderly and transparent marketplace.

8. Will the published information reveal the names or positions of individual short sellers?

No. The published information will contain only short selling information on an aggregated short sales volume and value for each counter.

9. Where can I find the published short sales data?

SGX will publish on its website daily reports on the total value and volume of short sales for each counter by the start of each trading day, based on short sale data collected on the previous trading day. Investors can access the short sales data at: www.sgx.com/shortselling from 11 March 2013.

10. How accurate is the published short sales data?

Market participants entering in short trades are expected to accurately disclose the nature of sell orders, i.e. whether they are short selling orders or normal sell orders, as well as the short quantity to be sold.

Market participants should exercise care when interpreting information on short selling. For instance, information on short sale volume may not reflect the outstanding short position in those securities. Volume of short sales may include trades which have since been squared off by offsetting buy trades.

11. What are the benefits of the new measures?

Information on short selling activities is relevant to the trading decisions of market participants. For example, information that those securities are under sustained heavy short selling may indicate strong negative price pressure on those securities.

As such, disclosure of short selling activities in Singapore is a step towards enhancing the information available for traders and investors to make informed trading decisions.

Information on short sale transactions also helps to deter market abuse by alerting authorities to activities that may potentially disrupt the orderly functioning of markets, and aids in investigation and enforcement.

Market participants should exercise care when interpreting information on short selling. For instance, information on short sale volume may not reflect the outstanding short position in those securities. Volume of short sales may include trades which have since been squared off by offsetting buy trades.

12. How do the new measures affect me as an investor?

Brokers may not enter a sell order if the investor has not informed them whether an order is a short sell order (covered or uncovered) or a normal sell order. SGX’s Trading Members must put in place systems and procedures to collect such sell order data from investors.

If and when you call your broker, your broker will ask you whether your sell order is a Short Sell Order or a normal sell order. If you trade through the internet, you will be required to indicate whether your sell order is a Short Sell Order or a normal sell order.

You should approach your broker for assistance with the procedures for marking of sell orders.

13. How do I determine whether my sell order is a Short Sell Order or a normal sell order?

A Short Sell Order is any sell order where the seller does not own the security to be sold at the time of placing the order.

You are deemed to own the security if at the time of placing the order:

  1. You are the legal or beneficial owner of the security, unless such ownership is pursuant to a securities borrowing agreement;
  2. You:
    1. have purchased or have entered into an unconditional contract to purchase the security, but have not yet received delivery of such security;
    2. have tendered other securities for conversion or exchange or have issued irrevocable instructions to convert or exchange other securities into the security, but have not yet received delivery of such security;
    3. have a right or an obligation to purchase the security under an option and such option has been exercised, but have not yet received delivery of such security; or
    4. have a right or warrant to subscribe for the security and such right or warrant has been exercised, but have not yet received delivery of such security; and the delivery referred to in (i) to (iv) would, in the ordinary course, be before the settlement of the sale of the security; or
  3. you have lent a security pursuant to a securities lending agreement as a result of which you are no longer the legal or beneficial owner but have a right of recall under the securities lending agreement.

You should approach your broker for assistance if you are uncertain whether your order is a Short Sell Order.

14. I have made arrangements to borrow the securities on Settlement Day. How should I mark my sell order?

If you have borrowed the security, you should still mark your sell order as a Short Sell Order. An investor is deemed not to own the security if he has borrowed the security to be delivered on or before the settlement of the sale of the security [pursuant to Rule 8A.2.1(a)].

 

15. I own a partial quantity of the sell order that I intend to submit. How should I mark my sell order?

You should only mark a sell order as a Short Sell Order if you do not own the full quantity of the sell order. Conversely, you should only regard a sell order as a normal sell order if you have the full quantity of the shares to be sold.

In a situation where you intend to sell more shares than you own, you should enter two separate sell orders. One order is for the portion that you own in full (i.e. normal sell order) and the other for the portion that you do not own (i.e. Short Sell Order).

For example, if you own 2,000 shares and want to enter an order to sell 5,000 shares, you should enter two orders: one normal sell order to sell 2,000 shares, and another Short Sell Order to sell 3,000 shares.

16. I wish to enter into a Direct Business trade. Must I mark my sell order if I do not own the securities that I have sold?

The requirement to mark short sell orders also applies to Direct Business trades. You must indicate whether your sell order is a Short Sell Order when reporting the trade to the exchange.

17. I have a buy order that is unfilled. I want to enter a sell order. How should I mark my sell order?

The marking of sell orders should be based on what the investor knows about his positions at the time of order entry.

For example, you hold 5,000 shares of Stock A. You put in an additional buy order for 3,000 shares of Stock A that is unfilled. If you wish to sell 8,000 shares of Stock A, you should enter two orders: one normal sell order to sell 5,000 shares, and another Short Sell Order to sell 3,000 shares. This is because at the point of order entry, the buy order for 3,000 has not been filled.

18. I do not know the quantity of securities that I own. Must I mark my sell orders?

You must mark your sell orders accurately. For shares which you bought using cash, you can check your holdings through CDP Internet Access or CDP Phone Service.

Please note that outstanding transactions that are due for settlement are not reflected in the holdings. For shares bought with CPF monies, please contact your CPF Investment Bank. Separately, you may wish to keep track of your holdings on an on-going basis so that you are able to mark your sell orders accurately.

To access these self-help services, you will need the Internet PIN or Telephone PIN. To apply, please download the application form from SGX website at www.sgx.com/cdp and post it to CDP. Upon successful verification, we will send the PIN to your mailing address registered with CDP. You may contact CDP at 6535 7511 or cdp@sgx.com if you require any assistance.

19. I have submitted a sell order that I have marked wrongly. Can I modify the order later?

Orders that are submitted to SGX-ST can only be modified for quantity. If you wish to make any changes in respect of accurate marking of sell orders, you will have to withdraw the order and enter a new order.

20. Will my broker confirm that I have accurately marked my sell orders?

You are expected to accurately disclose the nature of sell orders. Your broker is unable to confirm that you have accurately marked your sell orders as he does not have full knowledge of your holdings.

21. I have marked my sell orders wrongly and the orders have been executed. Can I modify the order later? Will I be penalized if I do not correct the sell order?

Yes, you can approach your broker to correct your sell orders if the orders have been executed. Your broker should submit the amendments to SGX on your behalf before 5.45pm on the next trading day. You must inform your broker in advance so that he has sufficient time to prepare the amendments for submission to SGX. You are also expected to accurately correct the quantity of the sell orders.

The accurate disclosure of sell orders is necessary for factual information to be provided to market participants regarding short selling. As such information may be taken into account by investors when making trading decisions, it is important that false or misleading information not be presented.

Section 330(1) of the SFA states that any person who, with intent to deceive, makes or furnishes, or knowingly and wilfully authorises or permits the making or furnishing of, any false or misleading statement or report to a securities exchange, futures exchange, designated clearing house or any officers thereof relating to dealing in securities shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $50,000 or to imprisonment for a term not exceeding 2 years or both.

In applying section 330(1) of the SFA, MAS will consider whether there was intent to deceive in respect of sell orders that had been inaccurately marked by SGX-ST Trading Members or inaccurately disclosed by market participants. As such, if you or your broker is found to have intent to deceive in respect of sell orders, you or your broker will be penalized under section 330(1).

Notwithstanding, as mentioned above, you may notify your broker to correct your sell orders and brokers are required to submit the amendments to SGX before 5.45pm the next trading day.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • “Notwithstanding, as mentioned above, you may notify your broker to correct your sell orders and brokers are required to submit the amendments to SGX before 5.45pm the next trading day.” – Is this still applicable as of 2017? I made a ‘naked short sell’ by accident and was told I’ll get charged a $75 admin fee etc. Is there anything I can do correct this? The rep from the broker says no so I’ve been looking around on how to cover before the buy-in.

    Thank you!

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