SCMP: Philippines debuts short-selling for traders

  • Brokers can lend shares that they don’t own to other borrowers once they have their own lending permits
  • The Philippines is embracing short-selling just as regional peers China and South Korea are tightening control over it

A total of 52 stocks and one exchange-traded fund, including all the equities on the benchmark gauge, will be available for short-selling on Monday after regulators signed off on a proposal first made by the Philippine Stock Exchange (PSE) in 1996.

“Without short selling or any index futures we will be a long-only market, so if there’s uncertainty on the economy, the political situation or even in emerging markets, [foreign investors] will all sell,” bourse President Ramon Monzon said in an interview with South China Morning Post. “With short selling, they can stay here and hedge.”

“It’s definitely a step in the right direction and about time,” said Conrado Bate, president at COL Financial Group, the nation’s biggest online stock brokerage. It will take time for investors and brokers to be familiar with shorting equities, he added.

For the debut, the Philippine Depository and Trust Corp. is the only licensed lending agent that can provide shares that it does not own for short-selling. Other brokers can lend shares that they own to clients or borrow stocks that they do not have from the depository for a fee.

“Liquidity has been one of the key constraints to foreign investors to build large positions in the Philippines stock market,” said Ernest Chew, portfolio manager for Southeast Asia equities at BNP Paribas Asset Management. “Short selling might cause more unfavorable volatility particularly in a market with lower liquidity,” he said.

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