Retail investors cool on short-selling of shares

KUALA LUMPUR: Short-selling of shares is yet to catch on with retail investors despite the investment tool having been made available to the public for some time.
Bursa Malaysia’s executive vice-president of market development of securities market Shahrul Amry Abd Malek said the low participation is because it takes time to reach the mass market.
“Basically it is a new market and the first trade was done in 2012. So it will take some time to expand to the mass market,” he told SunBiz in a recent interview. Based on the Bursa Malaysia statistics, only less than 30 stocks are short sold daily.
A broker who declined to be quoted said he does not foresee vibrant short-selling among retail investors given that most investors are chary of short-selling shares.
“Short-selling is not a simple thing. Plus now they have a lot of rules and restriction on short-selling. None of my clients are involved in short-selling activities.”
While he agreed that short-selling activities will help boost market trading, he warned of increased volatility, particularly with short-selling of blue chips.
Shahrul said retail investors can participate in the short-selling market through a securities borrowing arrangement with an approved securities borrowing and lending borrower.
Any short-selling can only be undertaken through a registered stockbroking company, with the requirement of opening a designated Central Depository System account for short-selling purposes.
“Before being approved, the brokers must have the necessary system and infrastructure in place to ensure that they have the front and back office system and they are able to have those controls in place to execute RSS (regulated short-selling) in the way it should be.
“In order to short-sell, there must be a borrower and a lender. In our system, the borrower must be an institution, usually a stockbroking company, then it is up to the broker to lend it (the securities) to the retail investors,” he said.
Remisiers Association of Malaysia president Sam Ng, however, opined that the current regulated short-selling platform allows for institutions to control public wealth for their own interests.
“The problem is the local market is not matured enough to understand the current and future value of a company.”
Ng said the scenario also allows for institutional investors to “play” among themselves, with the retail investors having to bear the risk if they want to hunt for profits.
He noted that it is not strange to see the movement of shares being manipulated by certain investors through short-selling bids.
“Only the wealthy people can borrow, how can retail investors borrow?” he asked, urging that Bursa Malaysia come out with a more equitable short-selling platform for all investors.