PSX warns brokers to abide by short-selling rules

Published May 2, 2019
The authorities expect the move will help improve the index, but brokers fear that it would lead to further decline. — AFP/File
The authorities expect the move will help improve the index, but brokers fear that it would lead to further decline. — AFP/File

ISLAMABAD: Pakistan Stock Exchange (PSX) has issued a notice warning stockbrokers against violation of short-selling rules but brokers fear that the move will likely reduce volumes in the market.

The notice issued by the PSX directed all trading right entitlement certificate (TREC) holders to comply with clause 13.5.2 of PSX Regulations relating to execution of blank sale in deliverable futures contract (DFC) market.

The notice, signed by Acting Chief Regulatory Officer Abbas Mirza, states that “PSX has observed that F-8 window, especially designed in the trading system for blank sale (short selling) is being used for executing sale transaction in the DFC market despite owning securities or having pre-existing interest.”

The authorities expect the move will eventually help improve the index, but brokers fear that it would lead to further decline in volumes.

Explaining the situation, a senior official of the Securities and Exchange Commission of Pakistan said that short selling is allowed only if that broker does not possess share of that company.

The maximum limit for short selling for the broker is up to three per cent of free floating shares of any company, whereas for each account holder, 0.5pc of the free float is the maximum limit.

“Usually, the share price is higher at the futures market so that broker sells shares of any company, but to make profit the brokers buys the shares of same company to square off its sale from the ready market when the prices are low,” the official said.

“But extensive selling has been observed in the future market and some brokers were selling at a limited quantity at low prices so that the impact of reduced share price is visible at ready market too, this way they buy back the shares at low prices,” the official added.

The official added that without this speculative activity, the prices would improve and the index would start moving upwards.

Meanwhile, some brokers have expressed displeasure over the move on the grounds that strict restrictions on short selling would eventually lead to reduction in trading activities.

“The volumes will further drop in the market leading to negative sentiment among the investors as well as brokers,” a broker complained.

On the other hand, the notice informs that brokers cannot short sell shares before the contract period ends, despite buying same number of shares from ready market.

Published in Dawn, May 2nd, 2019

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...
Islamabad protest
Updated 20 Nov, 2024

Islamabad protest

As Nov 24 draws nearer, both the PTI and the Islamabad administration must remain wary and keep within the limits of reason and the law.
PIA uncertainty
20 Nov, 2024

PIA uncertainty

THE failed attempt to privatise the national flag carrier late last month has led to a fierce debate around the...
T20 disappointment
20 Nov, 2024

T20 disappointment

AFTER experiencing the historic high of the One-day International series triumph against Australia, Pakistan came...