Costs will help attract short sellers

Traders will welcome the IDSS if the exchange and brokers keep transaction costs low to encourage participation


Cost factors could determine the level of interest stock traders will have to engage in the intraday short selling (IDSS) framework introduced by Bursa Malaysia.

Meant to encourage liquidity on the local exchange, the IDSS will allow trader to do naked short selling of a selected 280 stocks effective immediately, but the impact will take a little longer to see as many brokerages have yet to set-up the systems to offer this service to their clients.

“Traders will welcome the IDSS, but the exchange and brokers must keep transaction costs low to encourage participation. The exchange, for example, could just charge a clearing fee rather than a minimum RM200 if the client chooses to borrow the securities short sold. Brokers should offer low brokerage fees and borrowing charges and costs as well,” said a brokerage executive.

The IDSS framework follows Prime Minister Datuk Seri Mohd Najib Razak’s announcement on Feb 6 this year to enhance vibrancy and stimulate greater trading activity in the stock market.

The potential of the IDSS is good on paper, but how investors welcome it will be the determining factor.

“Many traders will be quite hesitant to see if it takes off in a big way or not. So, we will not see higher volumes traded initially, but there will be opportunities,” Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew told The Malaysian Reserve.

Brokers now need to put in place rigorous compliance requirements and safeguards such as clients’ trading limits, account details and fees/ charges to enable IDSS trades. The clients need to be aware of all the risk factors as well.

“In the case of borrowing securities, the arrangement is not as straightforward as opposed to buying. Also, there are risks which are not there when buying shares. If there are dividends during the short position period, you have to make good the dividends.

“And for small caps, the risk is that they are less liquid,” Pong said, adding the wide limit in share price movement will allow sufficient room for short selling.

The list of approved stocks for short selling will be reviewed every six months.

Bursa Malaysia has waived stamp-duty charges for small- and mid-cap stocks trading effective early March this year.

The waivers cover the trading of 361 counters on Bursa Malaysia, or about a third of the total listed companies on the local bourse, to enhance trading activities and demand for small-and mid-cap stocks.

The exchange hopes such moves would encourage greater participation, especially from retail investors which have shied away from the local equity market.

The government is also looking at a six-month waiver on trading and clearing fees for new investors, and the liberalisation of margin financing rules.