SET changes shorting rules amid chaos

SET changes shorting rules amid chaos

Fifth circuit breaker in history comes fast after fourth, underlining the vulnerability of equities

An investor monitors share price movements at Asia Plus Securities' headquarters on Sathon Road.
An investor monitors share price movements at Asia Plus Securities' headquarters on Sathon Road.

The Stock Exchange of Thailand has revised equity short-selling regulations temporarily, stipulating that SET members short-sell stocks only at a price higher than the last trading price, following a series of heavy sell-offs that triggered a circuit breaker.

Shorting, or short-selling, as defined by MarketWatch, is when an investor borrows shares and immediately sells them, hoping to scoop them up later at a lower price, return them to the lender and pocket the difference.

Shorting is much riskier than buying stocks, or what is known as taking a long position.

The rule change took effect after yesterday afternoon's trading session and will end on June 30.

Previously, the SET allowed members to short-sell stocks at a price not lower than the last trading price.

The measure is aimed at enhancing overall investor confidence, the SET said.

The weight of the measure is considered mild, according to Asia Plus Securities (ASP).

In addition to short-selling, there are other mechanisms to increase stock market momentum such as block trades, various derivatives and trading on margin, ASP said.

Sukit Udomsirikul, managing director of SCB Securities, said the revised short-selling measure can help the stock market curtail investors' dumping, but the coronavirus pandemic remains a concern.

Volatility will depend on developments of the situation, while news over the weekend could either yield a positive or negative impact on the market outlook next week, Mr Sukit said.

On Friday morning, trading on the SET was halted for a second straight day, as a circuit breaker was triggered after a 10% plunge.

Stock trading was halted on Thursday and Friday for a while after the SET index plunged by 10%. The SET has revised equity short-selling regulations temporarily to enhance overall investor confidence. (Photo by Pornprom Satrabhaya)

This was the fifth time in history for a circuit breaker to be activated to curb excessive volatility in Thailand's equity market, coming right after Thursday afternoon, when the pandemic panic and plunging crude prices triggered the fourth-ever halt.

The circuit breaker was set off for the first time in 2006, when the Bank of Thailand temporarily imposed capital controls. The second and third triggers occurred on Oct 10 and 27, 2008 during the subprime crisis.

The Federation of Thai Capital Organizations (Fetco) will propose a tax deduction incentive for stock market investment and investments made through the Super Savings Fund (SSF) to the Finance Ministry in a bid to rev up market momentum.

Fetco chairman Paiboon Nalinthrangkurn said the move is better than the government's plan to set up a stabiliser fund to support stock market conditions.

"We will have a discussion with other capital market participants on what the appropriate investment value is for a tax privilege," Mr Paiboon said.

The cabinet on Tuesday approved a raft of measures, including allowing investors to receive an additional tax privilege of 200,000 baht of annual income, separate from the tax-deductible amount applied to retirement-related funds, for SSF units where 65% of net assets is invested in SET-listed securities.

Investors must purchase these investment units between April 1 and June 30 and hold them for at least 10 years.

"The situation is getting worse day by day and the market cannot wait for the new SSF incentive to take effect," Mr Paiboon said. "The measure may not help much if panic-selling kicks in."

Other long-term investment funds, such as the Government Pension Fund, SSF and provident funds, could also revise investment regulations in stocks, he said, adding that more than 10 million people's retirement savings could be demolished when heavy equity sell-offs occur.

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