MAS revises Guidelines on the Regulation of Short Selling

1 October 2019

On 24 September 2019, the Monetary Authority of Singapore (“MAS”) revised the “Guidelines on the Regulation of Short Selling” (“Guidelines”).

The Guidelines aim to explain how MAS will administer the legislative provisions on short selling disclosure and reporting in Part VIIA of the Securities and Futures Act (“SFA”). The Guidelines should be read in conjunction with the provisions of Part VIIA of the SFA and the Securities and Futures (Short Selling) Regulations 2018 and, where relevant, other provisions of the SFA.

Under Singapore’s short selling regime, short sell orders for specified capital markets products must be disclosed to an approved exchange, while significant short positions in specified capital markets products must be reported to MAS. A short sell order arises where the seller does not have an interest in the product at the time the order is made. A short position arises where the quantity of the product that a person has an interest in is less than the quantity of the product that the person has to deliver at some point in the future.

This article highlights the main changes to the Guidelines.

Determining interest in a capital market product

One important aspect of the short selling rules is ensuring that covered shorts (i.e. where the seller has borrowed or made arrangements to borrow the capital markets products before the short sale is made) are also captured for reporting. The revised Guidelines clarify that a person who sold securities that were borrowed under a securities lending arrangement would have to report the sale as a short sell order, and would also be considered to have a short position in those securities from the time those securities are borrowed until they are returned to the lender. This is because his interest in the securities is discounted, while he would have an outstanding obligation to return the securities to the lender.

The revised Guidelines clarify that it is not the policy intent to capture as a short position instances where a person borrows securities without a corresponding intent to sell the borrowed securities, or for the borrowed securities to cover an existing short position. Such a person need not report such instances as short positions.

Errors in short sell order disclosures

The revised Guidelines provide that errors made in relation to the disclosure of short sell orders have to be managed in accordance with the rules and processes of the approved exchange.

In addition, there is no need to report an error as a breach to MAS once it has been rectified with the approved exchange.

Errors in short position reporting

The revised Guidelines also clarify that after errors made in relation to a short sell order disclosure have been rectified, the reporting person should not include the erroneous short sell order in the subsequent determination and reporting of his short position to MAS.