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Following the Global Financial Crisis, IOSCO, the international standard setting body for securities market, issued a Consultation Report on Short Selling that established principles for short selling, as they found this conduct within capital markets resulted in a loss of market confidence, and the potential for short selling to create settlement disruption1. The four principles established, were as follows:
a) Short selling should be subject to appropriate controls to reduce or minimise the potential risks that could affect the orderly and efficient functioning and stability of financial markets; b) Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities; c) Short selling should be subject to an effective compliance and enforcement system; and d) Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.2
Regulators like the European Securities and Markets Authority (“ESMA”)3 have since begun to roll out these very principles, and in 2016 the Monetary Authority of Singapore (“MAS”) issued its own Consultation Paper on Regulations for Short Selling, that contained draft Securities and Futures (Short Selling) Regulations (“Regulations”), and Guidelines on the Regulation of Short Selling (“Guidelines”). The Consultation Paper sought input from market participants, drawing on their concerns and experiences with short selling, such that they could ultimately assist how the new rules would play out.4 The consultation period closed in early 2017, and the MAS in publishing their results noted that they were “encouraged” that the market appreciated the benefits of having access to information on short selling activity:
While both short sell order disclosure and short position reporting share a common goal of enhancing transparency, they provide different informational value. From the feedback received, we observed that some might have confused the purpose of short sell order disclosure and short position reporting.5
Following the consultation period, the Guidelines were issued by the MAS at the end of May 2018, and amendments to the Securities and Futures Act (“SFA”) and Regulations came into effect on 1 October 2018.6 The Guidelines sought to provide further guidance on how these SFA amendments and Regulations would be legislated,7 and provided the crux of the short selling requirements for market participants, as currently short sell orders for specified capital markets products must be disclosed to an approved exchange per the Singapore Exchange (“SGX”) listing rules, and with the SFA amendments and new Regulations, significant short positions in specified capital markets products must be reported to the MAS in addition.8
The reports will need to be made online at the MAS’ Short Position Reporting System (SPRS): https://eservices.mas.gov.sg/sprs/. The MAS will thereafter publish aggregate short position information of each security on the SPRS every week.9
The MAS in their Guidelines have warned that market participants should exercise care when interpreting short selling information. “For instance, information on the volume of short sell orders may not reflect the outstanding short position in those securities. The volume of short sell orders may include trades which have since been squared off by offsetting buy trades. Conversely, information on outstanding short positions do not reflect the transactional flow of short selling pressure on a particular trading day.”10
In Europe, ESMA analysed the short positions reported under their own Short Selling Regulation (“SSR”), and found the following results:
The SSR data shows that there were 210,341 net short positions reported from January 2013 to December 2016. These net short positions related to over 2,000 European shares, the majority being UK and German securities. The ESMA analysis reveals that around 1,000 different investors are active in EU shares, with the large majority of them being domiciled in the US (40%), the UK (30%), and only 15% in the rest of EU. In addition, short-selling activities appear highly concentrated, with 150 investors accounting for more than 80% of all reported short positions.11
Their findings complement the overarching intentions of the Short Selling Regulations; that by tracking the relevant short positions the Regulators are able to monitor and reduce, inter alia, settlement risks and other risks linked with uncovered or short-selling that are being carried out by investors.12 It is hopeful that Singapore will expect similar findings, post roll-out of the Regulations and Guidelines, in due course.