SET to probe naked short selling

SET to probe naked short selling

Brokers required to submit evidence

The SET is preparing to examine short selling transactions from the past quarter.
The SET is preparing to examine short selling transactions from the past quarter.

The Stock Exchange of Thailand (SET) will set up a special working committee to investigate naked short selling to help Thai regulators examine possible offences.

The committee is expected to start working soon, while the SET prepares to examine short selling transactions from the past quarter by requiring brokers to submit evidence that proves their customers actually borrowed stocks from custodians. The deadline to submit evidence is in 15 days.

If brokers are unable to submit evidence or are found to have committed an offence with a customer, they are subject to disciplinary punishment and may face legal action if they violated the SEC Act.

Rongrak Phanapavudhikul, the SET's senior executive vice-president and head of legal affairs, said specific targets are omnibus accounts where the owner is usually anonymous. Many people can jointly open this type of account and often are foreign institutional investors, said Mr Rongrak.

In the past, the SET requested evidence of borrowed stocks from brokers and faced delays as brokers claimed they needed permission from many agencies. In addition, the bourse did not have the authority to inspect such information in depth.

The Securities and Exchange Commission (SEC) plans to help with in-depth investigations because it has the legal authority. The information sent by brokers will be rechecked with the custodians by the SEC to see if it matches, said the regulator.

The SET on Tuesday sent a letter to brokers, sub-brokers and custodians requesting their cooperation in investigating short selling transactions and working with the SEC to find the beneficiaries of those transactions.

Mr Rongrak said the SET board on Monday decided there is no need to follow the SEC's recommendation to change the short sell pricing rule by setting the price for short selling higher than the last price (the uptick rule) to avoid price dumping.

"There is no need to use it and we are still using the zero-plus tick as the Thai stock market is volatile because of global sentiment, not unusual transactions," he said.

The SET plans to monitor trade and is ready to change course if an unusual situation affects trading, said Mr Rongrak.

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