MANILA, Philippines – Years after initial plans began, the Philippine Stock Exchange (PSE) is finally set to launch its short selling program, with the target date being October 23.

Short selling is a strategy where an investor first borrows shares of a stock from a broker and sells them, in anticipation of a drop in price. The investor will then have to buy shares at a lower price and then return them to the broker, profiting from the difference. 

In other words, short sellers earn when a stock drops in price rather than when it goes up.

“For the PSE’s upcoming initiatives, PSE is set to launch short selling within the month. More specifically, we targeted October 23, given that all regulatory approvals were received for this initiative,” PSE president Ramon Monzon said during the Forum on Legislative Reforms for the Philippine Capital Market on Wednesday, October 4.

This will be the first time that the PSE is allowing short selling in the market.

Only PSE index stocks, mid-cap index stocks, dividend yield index stocks, and exchange-traded funds will be eligible securities for shorting. 

Securities can be shorted if the number of shares that have been sold short and remain outstanding is less than or equal to 10% of its total shares. This is known as the short interest ratio. If a security exceeds this 10% limit, it can’t be shorted until it falls back below this threshold.

The PSE has been planning for years to allow short selling in the local bourse. As far back as 2018, Monzon already said he was “optimistic that this facility will lend support to our securities borrowing and lending program and help improve liquidity in our market.” Monzon also said the PSE would release its short selling guidelines by the first quarter of 2021.

Now, Monzon said the PSE is preparing market participants by conducting several webinars. A webinar with retail investors is scheduled on Friday, October 6.

Other more developed financial markets in Asia – including Singapore, Malaysia, Indonesia, Thailand, and Hong Kong – have already allowed short selling for years. – Rappler.com

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