Finally, on the 16th of April 2018, after a 20-years ban on short-selling in Malaysia following the 1997/98 financial crisis, Bursa allows intraday short selling (IDSS) in our local bourse. Such desperate initiative is implemented to encourage retail participants in our market (which has been staying at around the 20-25% level, a far cry from its peak of more than 40% 20 years back) and comes at a surprise given that the top 7 government-linked funds own more than 40% of all public-listed shares in Malaysia and any moves that would possibly push the market value of the fund down should not be welcomed. My guess is that Bursa had done its’ work and believes that allowing IDSS shouldn’t be damaging to the market as a whole while giving the retailers more option to profit from the market. I’ve been talking to relevant people in the industry and had my account ready to perform IDSS these 2 days and with the information gathered, I agree that the impact (risk of huge daily sell-off, and spike in volatility) of IDSS should be minimal, at least in the near term. Here’s why.
To start it off, not all shares can be shorted. Market participants could only short-sell a list of 280 Regulated Shares (this list will be updated every 6 months and shares that can be shorted have a ^ symbol beside the stock’s name), which after further check, comprises mostly of big companies with sufficient trading liquidity. From the information I gathered, there should be enough buyers to absorb any additional selling pressure created by IDSS, thereby mitigating the risk of sharp sell-off CAUSED mainly by short-seller, given that the amount (volume) of short-selling done by PDTs/firms who are allowed to do regulated short-selling (RSS) all the while are pretty much negligible compared to the average trading volume of the regulated shares and retailers who are genuinely interested and is expecting to perform IDSS frequently are rare breeds. To top that, bursa disallow IDSS whenever a regulated share price drop by 15% and that the maximum allowable short for any given regulated share stands at 3% of the total outstanding shares. Again, these measures should mitigate the risk of sharp fall caused mainly by short-selling activities. The fact that intraday short-sellers need to cover their positions by 4pm every trading day (technically), means that there will be additional buying (on top of the usual buying) to support share prices toward the end of the trading day, thereby cushioning any dip in share prices.While daily volatility is expected to increase with IDSS, it should happen VERY gradually, given that most participants are not familiar with such a practice of selling first then only buying back the shares sold later. Even in countries where short-selling has been a norm, people are still culturally more comfortable with taking long positions than shorts (some people even believe that shorting is not an act of patriotism) and I don’t expect Malaysians to be different unless market volatility continue to increase such that participants are forced to look for alternative ways to make money from the market. As long as the intraday constraint is not removed, I believe, any risk of huge sell-off and volatility spike caused by short-selling activities should be contained.
While the allowance of IDSS does provide an alternative way to make money, I do not suggest the faint-hearted to perform IDSS as it is tougher than it sounds. Do contact your dealer and understand the risk better if you are truly interested in it.