Securities Commission (SC) and Bursa Malaysia extends suspension of short-selling until June 30, 2020.
Ban on Short Selling
- 1-month extension of ban on short selling in Malaysia from Jun 1, 2020 to Jun 30, 2020.
- Original ban on short selling was from Mar 24, 2020 to Apr 30, 2020.
- Affects intraday short selling (IDSS), regulated short selling, and intraday short selling by proprietary day traders.
- Does not affect permitted short selling of securities underlying exchange traded funds (ETFs) by market makers.
- Objective to reduce market volatility amidst Covid-19 crisis.
- Other countries such as Australia, Austria, Belgium, France, Greece, Italy and Spain have also banned short selling.
- Largest global market in the US still allowing short selling, which remains a small % or overall trading activity.
“The extension of the temporary suspension will ensure that market management measures are still in place, to manage risks within the prevailing uncertain and challenging environment amid Covid-19 pandemic, as well as to mitigate any excessive speculative activities in the marketplace”
Understanding Short Selling
- Short selling (aka shorting) is an advanced trading strategy that speculates in the drop of a stock price to make profits.
- How it works is that the trader borrows the stock and then sells it to a willing market buyer, while betting that the price goes down so the trader profits the difference.
- Shorting can also be used as a hedging strategy by investors and portfolio managers.
- Unlike buying a share where the maximum risk is your capital, you risk losing more than your capital in short selling if the stock rises in price.
- Regulated short selling was introduced in Malaysia on Sep 30, 1996.
- Not all countries allow short selling, with some countries banning short selling in the 2008 global financial crisis.
- Proprietary day trader (aka PDT or prop trader) in Malaysia holds a dealer’s representative licenses to trades stocks including short selling.
- SC and Bursa Malaysia’s role is as regulators to have orderly trading activity.