Bursa Short-Selling Re-Schedule In Jan-2007

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Dec 12 2006
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According to latest news from The Edge, Bursa Malaysia Bhd now plans to re-introduce regulated short selling in January after postponing it several times this year, and will later incorporate it as a feature into its new trading platform for equities which is expected to be ready by end-2007. Short selling however would initially be conducted under a “controlled environment”, said the chief executive officer Datuk Yusli Mohamed Yusoff.

To start the ball-rolling, it was reported that Bursa Malaysia would only allow short selling for 70 large companies stocks selected based on their size and liquidity. To make things complicated, the process of borrowing and lending of stocks can only be conducted through Bursa Malaysia that will then charge borrowers or lenders a 2.2% interest on the total value of stocks involved.
Yusli admitted this new ruling will not see immediate increase in the stock exchange trading volume.
I find this amusing as if the Stock Exchange is serious about this easy but made to look-difficult short-selling mechanism to increase the trading volume, it should be made not only easier to execute but should be given more incentive to be successful. Short-selling is a common instrument within mature market such as NYSE, Nasdaq, LSE and others as a complement to the traditional stock-buying.
Yusli should understand that the perception of short-sellers as the potential bad-guys who will cause the stock-market to goes down is an immature thinking. In fact it is quite reverse – if the stocks are bullish, short-sellers will ultimately need to cover their positions by buying stocks and this will push up the stocks price.
On the other hand if the global market is on downtrend, short-selling will not only allow investors (local and foreigner) to cover their long position but potentially make tons of profit which can in return be channel back to the equity market to potentially support the falling market. Imagine if all the investors are trapped in a bearish market because they can only long the stocks – without any mechanism to liquidate their portfolio, it’s as good as losing these investors as continuous customers (who contribute in terms of brokerage fees) simply because they do not have any more money to invest. Sounds familiar?
That’s what happened to Malaysia Stock Exchange for a couple of years since the 1997 Asia Economic Crisis. The question is will Bursa finally wake up and serious about promoting Malaysia stock-market globally as a destination for foreign investors?

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