Regulated short selling allowed from Jan 1

“The suspension of RSS, scheduled to expire on Dec 31,2020, will be uplifted on Jan 1,2021, to facilitate investors’ risk management and revive securities borrowing and lending (SBL) activities, which is an integral capital market function to promote product development and market making activities, ” the SC and Bursa Malaysia said.

PETALING JAYA: The Securities Commission (SC) and Bursa Malaysia Bhd will uplift the temporary suspension of regulated short selling (RSS) on Jan 1.

In a joint statement, the capital market regulators said the decision was made after careful consideration of current market conditions and the evolving needs of the market.

They noted that they had reviewed other market management measures that were introduced this year, following heightened market volatility arising from the broader impact of Covid-19.

“The suspension of RSS, scheduled to expire on Dec 31,2020, will be uplifted on Jan 1,2021, to facilitate investors’ risk management and revive securities borrowing and lending (SBL) activities, which is an integral capital market function to promote product development and market making activities, ” the SC and Bursa Malaysia said.

They said the RSS would be re-introduced with the following enhanced control measures to ensure stability and maintain investor confidence. First, the daily gross short position limit for approved securities will be temporarily reduced from 3% to 2%, and second, a new cap of 4% on RSS aggregated net short position will be introduced.

Meanwhile, the temporary suspension on intraday short selling (IDSS) and intraday short selling by proprietary day traders (PDT short sale) due to expire on Dec 31,2020, will be extended to Feb 28,2021.

“Consequential to the extension of PDT short sale, temporary waivers in relation to PDT will be extended to Feb 28,2021. The temporary revisions to existing market management measures, namely, the dynamic and static price limits as well as the circuit breaker, will be extended to May 30,2021, ” the regulators said. These were implemented on July 20,2020, and are due to expire on Jan 18,2021.

In addition, the temporary relief measures and flexibilities relating to margin financing, which are due to expire on Dec 31,2020, will be extended to June 30,2021. The SC and Bursa Malaysia said they would continue to closely monitor ongoing domestic and global developments, and take a proactive approach in implementing appropriate measures that support a fair and orderly market.

The capital market regulators first introduced the temporary suspension of short-selling activities on March 24, barely one week after the FBM KLCI slumped by over 200 points in the March 11-19 period.

The sharp fall in the FBM KLCI was a result of rising local Covid-19 cases in March, the introduction of the movement control order and the slump in key stock market indices globally following the spread of the coronavirus.

The short-selling suspension move by the SC and Bursa Malaysia was part of a slew of proactive measures to mitigate potential risks arising from heightened volatility and global uncertainties as a result of the Covid-19 pandemic.

Analysts have attributed the rally on Bursa Malaysia earlier this year partly to the suspension of short-selling activities, which has been in place for more than eight months since late March.

Judging from the discussions in the media, certain quarters have noted that a decision to end the suspension of short-selling activities too soon could kill the rally. In the event of wide fluctuations in share prices or increased panic in the market, short selling could aggravate the decline in share prices.

However, some experts and market observers have said in recent months that the suspension ought to be lifted, considering that market confidence has returned to pre-pandemic levels.