PETALING JAYA: It looks like the intraday short selling (IDSS) measures introduced by Bursa Malaysia earlier this month couldn’t have come at a better time – when markets are being hammered and election uncertainties abound.
Yesterday, IDSS claimed its first victim – UNISEM (M) BHD.
Unisem, which plunged 18%, the biggest drop since the company’s initial public offering in 1998, saw its proprietary day traders (PDT) and IDSS activities suspended for the rest of yesterday.
Bursa Malaysia said in a statement that this was because its last done price had dropped by more than 15 sen or 15% from the reference price.
“The PDT and IDSS activities will only be enabled the following trading day, Thursday, at 9am,” said Bursa Malaysia.
Certainly, things were not helped by the poor market sentiment which saw Bursa Malaysia shedding 13.41 points to 1,851.93,
Brokers, however, aren’t too worried about IDSS bringing more downside to the market.
“To a certain extent, perhaps IDSS would exaggerate the downward pressure on stocks, but it won’t be severe.
“Regulated short selling (RSS) has already been in the Malaysian market for a while. In the latest measure, Bursa Malaysia further allows the PDT to do IDSS, which simply means they need to close out their positions within the day,” Rakuten Trade Sdn Bhd vice-president (research) Vincent Lau said.
He added that in Unisem’s case, its financial results were bad, and market sentiment for technology stocks was already weak. Hence, this further exacerbated the share price fall.
“Short selling in Malaysia is regulated, it’s not naked short selling. Investors will still have to cover their positions at the end of the day. Furthermore, there are still many brokers who don’t offer the facility for IDSS yet. So, overall, I don’t see the impact being great,” said Lau.
He added that IDSS was good to add vibrancy and depth to the market. This is a normal evolution in developed markets.
RSS involves borrowing shares of a company’s stock and selling it with the hope it can be bought back at a later date at a lower value. Meanwhile, naked short selling involves betting that the stock will go down in price without actually borrowing the stock or finding out if there is available stock to borrow in order to short it. This can cause further volatility or leave a stock open to manipulation.
RSS was banned in Malaysia in September 1997, but was reintroduced in 2007. Investors can participate in RSS so long as they have a stock borrowing and lending agreement approved by the Securities Commission.
As for Unisem, the semiconductor manufacturer tumbled 18% or 40 sen to RM1.82, after its first-quarter results slumped 87% due to the unfavourable exchange rate and lower margins.
Year to date, Unisem is down 50%.
Unisem’s net profit slumped 87% in the first quarter ended March 31 due to a weaker US dollar against the ringgit, and lower profit margins arising from a change in product mix.
The group posted a net profit of RM6.05mil in the quarter compared with RM44.9mil previously, while revenue fell 11% to RM321.55mil from RM360.25mil
The rest of the technology stocks were also battered, with the technology sector down 27.11% or 11.35 points to 41.86 points.
Bursa Malaysia had on April 16 implemented the IDSS framework for all investors in a bid to boost liquidity in the local bourse.
Currently, the list of approved stocks for short selling comprises 280 securities. The list will be reviewed every six months.
Bursa Malaysia said that a robust compliance requirement and safeguards have also been put in place to allow for IDSS trades to take place.
This includes market controls for IDSS suspensions if a stock price falls by more than 15% from the previous day’s closing price, or if the gross short-selling volume exceeds the daily maximum limit of 3% of outstanding shares per security.
The framework also specifies compliance obligation requirements for investors before IDSS activities can commence.
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