Martin Lee @ Sg

Hefty Penalties for Naked Short Selling

Currently, naked short selling which results in failed delivery to CDP will be bought in on the trader’s behalf on the third day by SGX. It will be done in the buying-in market (which takes place at 1130hrs every day) at two bids above the last transacted price and with a $30 transaction fee.

To deter naked short selling, a penalty will be imposed for making such a failed trade. This penalty will be at five percent, with a minimum of $1000. 

Another new penalty will hit those who short-sell in the buying-in market, with a potential penalty of $50,000 and disbarment from participating in the buying-in market.

These penalties will take effect for trades executed from Thursday 25 September 2008 onwards. The fee will be reviewed from time to time to assess its effectiveness.

As information about naked short positions which result in failure of delivery to CDP would be useful to market participant SGX will publish the list of buying-in securities and the volume of shares sought, at 11am every day with immediate effect. Publication will be done via SGXNET and SGX website. This method of dissemination of information will be more efficient than the present practice of having the information relayed through brokers who participate in the buying-in market.

After completion of buying-in, SGX will also publish the list of securities bought-in (which includes individual counters), the volume and dollar-value at 8:30 am the following business day. 

These changes should help to deter speculative naked short selling and help improve the market orderliness.

Personally, if I ever want to short sell a share, I will make use of instruments like CFD rather than perform a naked short.

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