Looking for culprits in the Thai bourse

Looking for culprits in the Thai bourse

An exploration of claims of short selling, naked shorting, and what regulators are doing to restore confidence

Retail investors are concerned that short selling using a trading program could be unfair. The SET allows short selling under specific conditions, including stock list and pricing rules.
Retail investors are concerned that short selling using a trading program could be unfair. The SET allows short selling under specific conditions, including stock list and pricing rules.

Short selling and naked short -- the culprits that cause chaos in the Thai stock market today?

While the Stock Exchange of Thailand (SET) has posted large losses this year, it has also been plagued by volatility. Regulators and several analysts point to global factors for the volatility on the Thai bourse, but some retail investors cite short selling as the culprit while public confidence in the SET wanes.

Retail investors are concerned short selling via computer programs may be unfair, hinting at rules violations from naked short sales, causing stock prices to drop dramatically. These investors suggested naked short selling is to blame for the Thai bourse's continuous decline.

As of Nov 20, the SET index was down 14.9% year-to-date, with market capitalisation losing 3.2 trillion baht to 17.5 trillion. The Thai stock market has suffered several waves of fundamental shocks this year, most of them attributed to external factors such as the banking turmoil in the US and Europe, the Federal Reserve's interest rate hikes, and the Israel-Hamas conflict that began early October.

Domestically, although the new government took office in August, uncertainties surrounding economic policies, notably the digital wallet initiative, have shaken investor confidence and raised concerns about Thailand's fiscal stability and credit rating going forward.

As the SET index wavers, analysts say it encourages short selling to turn a profit during the market downturn.


The SET allows foreign and local investors to engage in short selling under specific conditions, including stock list and pricing rules.

Short selling involves borrowing a security that you think is going to decrease in price from your brokerage and selling it on the open market. Then you buy back the same stock later, hopefully for a lower price than you initially sold it for, and pocket the price difference.

For example, ZZZ stock is priced at 180 baht. If investors expect the price of ZZZ will drop, they can borrow shares from a securities company, then sell the shares at 180 baht. If the price dips to 150 baht, they buy the shares back and earn a profit of 30 baht per share.

On the other hand, if the ZZZ share price increases to 200 baht, investors have to buy them back from the securities company, booking a loss of 20 baht apiece. This does not include fees and value-added tax for short sales.

Where are the shares borrowed from?

Normally securities companies that offer short sale services can lend stocks or provide securities borrowing and lending services. The borrower must place collateral in the form of cash or securities in case they cannot return the shares to the securities company.

The stocks investors can borrow for short sales are specified by the SET, which totals 333 securities at the moment.

For foreign investors, they can engage in short selling on the SET by borrowing stocks from a broker or custodian abroad.

The SET sets the trading price for short selling at zero plus tick, meaning the shared is traded at the same price as the previous time it traded.

The Securities and Exchange Commission (SEC) recently recommended the SET consider using the uptick rule, which requires short sellers sell only when the price increases, setting the price above the current market price and ensuring the sale executes only when the price rises.


While short selling is sometimes portrayed as a negative force in markets, it can strengthen markets and benefit investors in several ways.

Short selling facilitates efficient price discovery, improves liquidity and promotes healthy scepticism among investors. The increased trading activity is thought to make markets more efficient and integrated.

Short selling also helps create unified pricing for related assets by facilitating arbitrage across markets.

Although short selling can improve market efficiency, critics note that the practice may exacerbate stock declines, enable manipulative bear raids, and cause temporary artificial inflation in shares.

According to Asia Plus Securities (ASPS), short selling has not increased much as it comprises only 5.6% of total trading, close to the level in 2022.

From 2015 to 2020, short selling did not hurt the SET index much, with a correlation coefficient of only -0.06, said the brokerage.

Earlier this month, South Korea suspected naked short trading and announced it was reimposing a ban on short selling until June to investigate the irregularities.


Naked short selling is short selling without first arranging borrowing, which is illegal. When the stock is in short supply, finding shares to borrow can be difficult.

The SET and SEC have not found any instances of naked short selling, and the prime minister's adviser claimed it is not occurring in the Thai stock market.

Retail investors are sceptical that naked shorting is not occurring as several foreign investors use algorithm trading programs, including high-frequency trading (HFT).

ASPS said HFT comprised 10-15% of total trade in 2022, increasing from 5-10% in 2019, but not significantly affecting the market.

HFT usage in Thailand is small compared with other markets, reaching 55% in the US, 39% in Europe, 35% in Germany, 26% in Japan, and 25% in Australia, said the brokerage.

Foreign investors make up the largest group in the Thai bourse and account for more than half of total market trading. Retail investors comprise 32-35% of the market, a significant decline from five years ago.

Foreign investors actively use program trading, including robots and HFT, for short-term profits, portfolio risk management and arbitrage trading.

The use of efficient trading programs coupled with low trading commissions in the highly liquid Thai bourse has meant the volume of program trading increased to roughly 30-35% of total market trade.

Some analysts note program trading comprises 60-70% of total trade in developed markets.


The SET said earlier this week it is inviting experts from foreign stock exchanges to inspect brokers and their customers for possible short sales. The bourse asked for brokers' cooperation in submitting evidence of stock borrowing by foreign customers over the past three months.

Foreign omnibus accounts are going to be targeted because they often belong to many investors who jointly open an account anonymously.

The probe is attempting to find out the end beneficiaries of short sale transactions, as the SEC seeks transparency on these sales to restore market confidence.

The SET stated the in-depth investigations and requests for information from foreign agencies must be carried out by the SEC, which has the legal authority.

The bourse gave brokers 15 days to send it proof of stock borrowing. If brokers do not send the proof by the deadline, the customer will be determined as lacking proof of borrowing and the transaction will be defined as naked short selling, said the SET.

If a broker is found to have participated in naked short selling, it is subject to disciplinary action, with punishment ranging from fines, warnings and suspension of trading orders, the SET said.

If the actions violate the SEC Act, the regulator plans to use its legal powers to pursue punishment.

Meanwhile, the SET wants to compare the investments of all groups of investors to improve and develop the market in the long term.

The bourse is also preparing to rebalance stock market trading by accelerating the expansion of the retail investor base, as well as institutional investors and brokers to help stabilise the market.

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