• IP addresses are NOT logged in this forum so there's no point asking. Please note that this forum is full of homophobes, racists, lunatics, schizophrenics & absolute nut jobs with a smattering of geniuses, Chinese chauvinists, Moderate Muslims and last but not least a couple of "know-it-alls" constantly sprouting their dubious wisdom. If you believe that content generated by unsavory characters might cause you offense PLEASE LEAVE NOW! Sammyboy Admin and Staff are not responsible for your hurt feelings should you choose to read any of the content here.

    The OTHER forum is HERE so please stop asking.

SGX is World Class Xchange? Dream On!

makapaaa

Alfrescian (Inf)
Asset
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Short selling's shortfall: 'Has SGX considered the simpler and tried solution of reinstating the cash market?'
</TR><!-- headline one : end --><!-- show image if available --></TBODY></TABLE>




<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->WITH some personal experience in the local stock market, I hope you will find my comments of some relevance in the current hot topic of penalties the Singapore Exchange (SGX) will shortly impose on 'naked short sales'. This subject is covered in the articles, 'Hefty penalties for naked short selling' last Tuesday and 'Traders jumpy over penalties' last Wednesday.
To start from basics, the essential purpose of a successfully regulated market is to ensure the buyer gets proper title to what he contracts and pays for, and equally the seller too gets paid for what he has sold and delivered. In all contracts, it is usual to spell out clauses for penalties to be imposed for non-fulfilment or late fulfilment of stipulated completion dates.
In the case of stocks, which are mostly freely traded and transferable, there is really no 'opportunity cost' loss to justify the hugely punitive measures SGX has introduced. No part of the fine payable by the offending short seller is passed on to benefit the purportedly injured party, the end-buyer, and it accrues wholly to the supervisory SGX. Seen in perspective, the move seems little more than an attempt to augment its own coffers. The investing public are surely entitled to know the rationale if it is otherwise.
The new rules appear to be a knee-jerk and pre-emptive reaction to what could happen should there be rampant and uninhibited 'naked short-selling'. It is difficult not to associate SGX's action with steps taken on the New York Stock Exchange where the meltdown in stock prices is largely attributed to such short-selling tactics, with the necessity of a huge 'lifeboat fund' injection of US$700 billion (S$1,000 billion) to prevent a further catastrophic collapse in its banking system. Is there the insinuation, or, for that matter. the likelihood of a similar development here in Singapore, for SGX to follow the US? If not, SGX's new rules are premature and one could even say illogical.
Those with longer experience in the local market will recall that in the aftermath of the Pan-Electric debacle, trading was restricted to what was basically 'cash and carry' as indeed had been the case from the earliest days of stock trading in Singapore going back to the 1870s. In fact, there are several historical precedents that, in any anticipated crisis, the local stock exchange authorities have habitually resorted to restricting trading to 'cash market' and/or on an 'immediate delivery' basis, as in the prevalent 'buying-in' process. That last mechanism is still intact.
It is some years now, however, since SGX decided to scrap the 'cash market', which would have enabled sellers to obtain their proceeds on 'T + 1' itself, instead of the present 'T + 4'. Suggestions for a restoration of this useful 'cash market' have been met with a stony indifference from the regulatory body.
On the subject of short selling itself, SGX finally succumbed to the realisation, after many years of resistance, that in the end analysis, it is an additional and useful tool for market participants, and eventually it is now permitted..
So have the rules for short sales been found wanting, and if so in what way to warrant the present sudden additional severe penalties, which have been described by some as 'draconian'?
The SGX directive mentions that 'an initial review will be conducted after a month', which goes some way at least to suggest these new rules are very much on an ad hoc basis.
Has SGX considered the simpler and tried solution of reinstating the cash market, where the twin forces of supply and demand would have been an effective balance to prices leading to a more orderly market.
This worked efficiently enough for more than 100 years until it was done away with.
Narayana Narayana <!-- end of for each --><!-- Current Ratings : start --><!-- Current Ratings : end --><!-- vbbintegration : start -->
 
Top