SGX calls for transparency with shortselling order specifications

In a bid to increase market transparency, the Singapore Exchange Limited (SGX) yesterday made marking of shortselling orders compulsory.

SGX also framed technical specifications to its members to accompany this development. In consultation with the Monetary Authority of Singapore (MAS), the marking of short-selling orders will begin in the first half of 2010. In addition, statistics of aggregate short-selling activity for each individual security will be published on a daily basis.

This measure follows a November 2008 public consultation paper issued by SGX on efforts to enhance the transparency of short-selling activities. The feedback received showed that most respondents supported the proposed marking of short-selling orders and the publication of short-selling data.

MAS and SGX will issue more details on the proposed legislative and regulatory changes soon.

For now, the salient features of the measure consist of mainly in two parts: the definition and scope of a short-order, and obligations of clients and brokers.

According to the SGX, a short-sell order is defined as any sell-order where the seller does not own the quantity of shares sold at the time of placing the order. This includes covered short sales, where the seller has borrowed the shares prior to placing the sell order, for the purposes of delivery to the buyer. The proposed measure will apply to all securities listed on SGX-ST, with the exception of Extended Settlement (ES) contracts.

Also, all clients of brokers will be required to declare to their brokers whether a sell-order is a short-sale at the point of placing the order. Brokers will be required to convey such information to SGX-ST on behalf of their customers at the point of order entry. SGX-ST will consolidate and publish the aggregate short sold volume and value per individual counter, based on the short sale orders which are filled, before the start of the next trading day.

The measure hopes to increase the transparency of the extent of aggregate short-selling activities in individual securities. It should potentially provide additional input for market participants in making their investment decisions, and may also help deter manipulative conduct.