Investors hit by short-sale ruleI wish to bring this article to everyone's attention. Currently, SGX impose penalties on those who carry out naked short selling. But as stated in this article, many of these failed trades are made by retail investors who are selling shares held in their CPF without specifying they are CPF trades or their accounts are not properly linked up to SGX. So if you are selling shares held in your CPF, check your orders carefully before submitting. This mistake is an expensive mistake to make.
New SGX rules impose hefty fines on those who sell shares they don't own
By Goh Eng Yeow, Senior Correspondent
(Taken from the Straits Times as part of an article on 13th May 2009)Investors have been told by the Singapore Exchange (SGX) to pay fines of $1,000 or more within five days of failing to settle their trades.
SOME investors rushing back into the red-hot market have been caught out by new rules on short-selling and heavily fined for selling shares that they did not actually own.
They have been told by the Singapore Exchange (SGX) to pay fines of $1,000 or more within five days of failing to settle their trades.
The penalties were introduced last September to deter 'naked' short-selling during a period of near panic on global bourses.
Such short-selling occurs when a trader sells a stock he does not own or has not borrowed in the hope that the price will fall. This would allow him to pocket the difference.
But the SGX appears to be catching an increasing number of 'innocent' investors who fail to deliver small quantities of shares when a trade is due to be settled three days after it is transacted. The trades are usually 1,000 or 2,000 shares of a blue chip like DBS Bank or SingTel.
When investors fail to come up with the shares at settlement, the SGX has to buy the stock on a specially established buying-in market. It then delivers the shares to the buyer on the seller's behalf - as well as levies a hefty fine.
The number of failed trades has risen sharply in line with the rise in daily market volumes. They have more than doubled in the past month, from 1.4 billion shares to 3.7 billion.
Two weeks ago, the SGX buying-in market attracted trading in about 10 to 15 counters a day. By yesterday, the list of counters traded had grown to 50.
Many of these failed trades have apparently been made by retail investors returning to the market after a long absence. They are selling online shares held in Central Provident Fund (CPF) accounts without specifying that they are CPF trades, or their accounts were not properly linked up to the SGX.
One remisier gave the example of a client fined $1,000 after selling 1,000 OCBC shares online.
Thursday, May 14
Investors hit by short-sale rule
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Thursday, May 14, 2009
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hi i am fairly new to trading and would just like to ask if it is legal to:
ReplyDelete1) short sell a stock then buy back the same quantity later on the same trading day?
2) short sell a stock then buy back within T+3?
sorry if these are stupid questions, but i can't find the answer anyway. thanks in advance.
mark
Hi Mark,
ReplyDeleteYou can short a stock on SGX but you must buy it back on the same day you short it, to avoid the penalties imposed by SGX. Thus even if you buy it back after the same day you short it, SGX will still impose penalties on you.
By the way, my advice is that if you really want to short, don't use naked short selling. It will be far cheaper and safer to short using Contracts for Difference or in short CFD, Securities borrowing and lending or in short SBL and the newly introduced Extended settlement contract or ES contract is short.