Sep 24 2008
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.
Click here to leave a comment.
Naked short sellers need to cover their position within the trading day if not their broker will buy back the shares in T-3 during the buying-in market timing?
[Reply]
lioninvestor Reply:
September 25th, 2008 at 12:03 am
Yes.
It’s actually the same as in the past just that this time round, you have to pay a fine of $1000 or 5% (whichever is more) for each failed trade.
This should be enough to deter many people.
[Reply]
Collin Reply:
September 25th, 2008 at 12:51 am
I see.
So, how does this buying-in market works? Why do brokers have to cover their client’s positions specifically at the timing during this period?
Thanks.
[Reply]
lioninvestor Reply:
September 25th, 2008 at 12:05 pm
The timing is stipulated by SGX. Buy in is done automatically by them at 2 bids above.
Not too sure about the exact technicalities but bottom line is - don’t naked short.
What do you mean by 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?
Buying in happens every day 1130 am, does tt mean tt if you naked short u must do it before 1130am to avoid getting penalised?
And of course subsequently to cover the short position before market close to avoid SGX buying in for you?
[Reply]
lioninvestor Reply:
October 10th, 2008 at 11:33 am
Hi Chris,
Any naked short has to be bought back in the same day. Otherwise, you will incur the 5%/$1000 penalty.
These positions will then be closed by SGX for you on (T+3) in the buying-in market.
This is a special market which we can’t access directly (have to do it via our brokers). All trades in the buying-in market is done immediately. Which means that anyone who sells in the buying-in market needs to have the scrip already in his CDP.
Any joker who tries to sell in the buying-in market when he doesn’t already own the stock will get the $50,000 penalty and barred from future participation in it.
[Reply]
Chris Reply:
October 10th, 2008 at 11:39 am
Thanks for clarifying lioninvestor. Great help!
[Reply]