THE Philippine Stock Exchange (PSE) said it will start the short-selling of stocks by the middle of next year, in time with the unveiling of Exchange’s new trading platform, the Nasdaq.
“As you know, we are refreshing through the Nasdaq trading engine. It [short-selling option] is going to be programmed in,” PSE President Hans Sicat said.
Earlier this year Insurance Commission (IC) Circular Letter 2014-31 was issued, allowing insurance companies to participate in the PSE’s securities borrowing and lending (SBL) program.
The guidelines provide acceptable collateral that lenders may accept, which include cash, government securities and equity shares listed in the PSE.
The SBL, also called as short sale, allows the lending of shares of stock from a lender, usually an investor, on a given date to a borrower’s portfolio to support its trading activities.
The investor normally sells borrowed securities in anticipation of a price decline, but the borrower will have to return the same amount of shares at a given point.
“Once that happens, you will have the ingredient for a more robust activity to borrow and hedge. It also becomes an important building block for a lot of the first derivative products all this future,” Sicat said earlier.
Sicat, however, said state-owned pension funds Government Service Insurance System and Social Security System may not join in the program, as their respective charters may not allow short-selling activities.
He said private insurance firms are more likely to join in the program as they have the flexibility.
PSE COO Roel Refran said prior to the approval of the guidelines, many investors are earning by just lending their securities through a simple bilateral borrowing and lending agreements.
“But the way forward is to have a central counterparty arrangement similar to how trades are done in the Exchange by minimizing the counterparty risk. It would be best housed in depository clearing house as is the case in other markets,” Refran said.
Last month IC also released a circular that recognizes an exchange-traded fund as a product that insurance and reinsurance companies and mutual-benefit associations can invest into.