Philippines to debut short-selling for traders after 27-year wait

A total of 52 stocks and one exchange-traded fund, including all the equities on the benchmark gauge, will be available for short-selling on Monday after regulators signed off on a proposal first made by the Philippine Stock Exchange Inc. in 1996.

“Without short selling or any index futures we will be a long-only market, so if there’s uncertainty on the economy, the political situation or even in emerging markets, they will all sell,” bourse President Ramon Monzon said in an interview.

“With short selling, they can stay here and hedge,” he said, referring to foreign investors.

“It’s definitely a step in the right direction and about time,” said Conrado Bate, president at COL Financial Group Inc., the nation’s biggest online stock brokerage. It will take time for investors and brokers to be familiar with shorting equities, he added.

For the debut, the Philippine Depository and Trust Corp. is the only licensed lending agent that can provide shares that it does not own for short-selling. Other brokers can lend shares that they own to clients or borrow stocks that they do not have from the depository for a fee.

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Liquidity fears

Brokers will be able to lend shares that they don’t own to other borrowers once they have their own lending permits. To do that, they need monitoring systems to track the shares. But brokers aren’t in a rush to become lending agents due to the costs required, according to Alex Dauz, president at Maybank Securities’ Philippine unit.

The ability to short sell may not be enough to lure back global funds. “Liquidity has been one of the key constraints to foreign investors to build large positions in the Philippines stock market,” said Ernest Chew, portfolio manager for Southeast Asia equities at BNP Paribas Asset Management.

“Short selling might cause more unfavourable volatility particularly in a market with lower liquidity,” he said.