Foreign short-sell transactions on the Stock Exchange of Thailand (SET) remain at normal levels as most foreign equity transactions are still conducted via custodians, says SET president Pakorn Peetathawatchai.
The SET allowed foreign investors to borrow stocks listed as non-voting depository receipts (NVDRs) for short-selling transactions, effective since April 3.
Mr Pakorn signed the order on March 19 to let foreign investors borrow underlying securities on the NVDR list as ordinary shares eligible for short-selling transactions.
The move facilitates greater convenience and transparency in terms of information disclosure for foreign short-selling, he said.
Naked short-selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed.
The SET will consult with the Securities and Exchange Commission to officially announce regulations, practices and conditions allowed for foreign short-selling through borrowing stocks listed as NVDRs.
Regulations set to be officially announced will still remain in the current framework, aimed at boosting investor confidence, said Mr Pakorn.
Year-to-date foreign short-selling is valued at 80 billion baht compared with last year's 282 billion, said Asia Plus Securities (ASP) vice-president Terdsak Taweethiratham.
The move to allow foreign short-selling could have a negative effect on the SET amid current market conditions, but the rules requiring transaction disclosure help market participants to see an upcoming trading trend, said Mr Terdsak.
The main stocks targeted for short-selling this year are PTTGC, KBANK and PTTEP, according to ASP.
Normally, foreign investors will short large-cap stocks because they have high trading liquidity, he said.
Tisco Securities chief executive Paiboon Nalinthrangkurn said foreign investors' short-selling will help increase the stock market's liquidity and balance the trading volume.
"The stock market will reflect opinions on [equities] faster than in the past. Short-selling will be used as a tool to sell stocks when investors think the market is heading towards a decline," said Mr Paiboon.
"At the same time, investors will return to purchase equities at a faster pace when investor sentiment turns positive."
In a mature stock market, which allows hedge funds to engage in short-selling without securities-backed collateral, the market is not highly volatile because institutional investors contribute the largest portion, he said.
But Thailand's stock market still needs collateral for equity trading to safeguard against high volatility.
Sentiment in Thailand's stock market is being pressured by domestic politics and foreign inflows will return once there is greater clarity on political issues, said Mr Paiboon.
Pattera Dilokrungthirapop, chairwoman of the Association of Securities Companies, said foreign investors' trade contribution to the SET is thin as domestic politics cast a pall on investor sentiment.
The transaction value of short-selling through borrowing stocks in the NVDR list is lower than 200-300 million baht, while the portion of total foreign trading on the SET comprises 35-40%, said Mrs Pattera.