In a turbulent market, you can make big money. But by the same toke
n, you can also get yourself into deep trouble if the market turned against you.
The following is an extract from Business Times on what will happen if you short and failed to cover your position.
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Business Times - 23 Sep 2008
Unknown short-seller hit by $1m loss
SGX initiates buy-in for shares against short-seller who fails to cover his position
By VEN SREENIVASAN
Someone out there is licking his wounds after taking an almost $1 million hit after a naked short-selling adventure that went badly wrong.
The Singapore Exchange (SGX) yesterday initiated a buy-in for a huge chunk of China Hongxing shares against a short-seller who had dumped the stock last Friday but failed to cover his position before the close of the session.
In all, the SGX yesterday bought-in some 13 million shares of the mainboard-listed Chinese sports shoes and accessories maker at around 35.5 cents per share.
This was to cover the short sale of an equal amount of shares at around 25 to 27 cents per share during last Friday's session.
Besides taking a loss on the price difference, the short-seller also took a hit on the transaction fee of $40 per block transacted, and a higher brokerage rate of 0.75 per cent on the deal.
Market insiders reckon the loss could stack up to around $1 million.
n, you can also get yourself into deep trouble if the market turned against you.The following is an extract from Business Times on what will happen if you short and failed to cover your position.
=====================================
Business Times - 23 Sep 2008
Unknown short-seller hit by $1m loss
SGX initiates buy-in for shares against short-seller who fails to cover his position
By VEN SREENIVASAN
Someone out there is licking his wounds after taking an almost $1 million hit after a naked short-selling adventure that went badly wrong.
The Singapore Exchange (SGX) yesterday initiated a buy-in for a huge chunk of China Hongxing shares against a short-seller who had dumped the stock last Friday but failed to cover his position before the close of the session.
In all, the SGX yesterday bought-in some 13 million shares of the mainboard-listed Chinese sports shoes and accessories maker at around 35.5 cents per share.
This was to cover the short sale of an equal amount of shares at around 25 to 27 cents per share during last Friday's session.
Besides taking a loss on the price difference, the short-seller also took a hit on the transaction fee of $40 per block transacted, and a higher brokerage rate of 0.75 per cent on the deal.
Market insiders reckon the loss could stack up to around $1 million.
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And what if you still stubbornly short the market without covering your position? Well in that case, this is what’s going to happen to you. The following is an extract from Business Times.
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Business Times - 27 Sep 2008
SGX will not penalise naked shorts caused by 'honest mistakes'
By LYNETTE KHOO
…….Starting Thursday, SGX imposed a penalty of 5 per cent of the value of a failed trade subject to a minimum of $1,000, on top of the current processing fee of $30 per contract. A broker who fails to deliver the shares in the buying-in market may also be liable to a penalty of $50,000 and/or barred from participating in the buying-in market.
The penalty is to be paid within five business days of notification. But SGX clarified that there are provisions to appeal against penalties. While a decision on an appeal is pending, the dealer does not have to pay a fine. The result of the appeal will be known within 10 business days of the date of notification. 'We will consider factors such as the intent of the investor who opens the sale, profile of the investor and trades, and whether the trade has any potential adverse impact on the integrity of the settlement system,' said SGX head of markets Gan Seow Ann.
The fines will go towards investor education initiatives.
Mr Gan also said that the primary intent of the new rules is not to curb short-selling per se but to deter failed share delivery - which threatens to compromise the settlement system. 'It was never meant to be a response similar to what you see in other environments, where regulators have banned short-selling,' he said, though it was easy to make such an association as the measures came just after regulators imposed short-selling curbs elsewhere. Mr Gan stressed that the measures are largely pre-emptive. 'Despite the market turbulence and all these uncertainties, trading continues to be orderly and there was no pressure on the system as far as settlement is concerned.'
On the Hong Kong bourse, naked short-selling is illegal and subject to jail terms and/or fines. The Hong Kong stock exchange (HKEx) said yesterday it also plans to increase the penalty fee for securities settlement failure……
================================================
Business Times - 27 Sep 2008
SGX will not penalise naked shorts caused by 'honest mistakes'
By LYNETTE KHOO
…….Starting Thursday, SGX imposed a penalty of 5 per cent of the value of a failed trade subject to a minimum of $1,000, on top of the current processing fee of $30 per contract. A broker who fails to deliver the shares in the buying-in market may also be liable to a penalty of $50,000 and/or barred from participating in the buying-in market.
The penalty is to be paid within five business days of notification. But SGX clarified that there are provisions to appeal against penalties. While a decision on an appeal is pending, the dealer does not have to pay a fine. The result of the appeal will be known within 10 business days of the date of notification. 'We will consider factors such as the intent of the investor who opens the sale, profile of the investor and trades, and whether the trade has any potential adverse impact on the integrity of the settlement system,' said SGX head of markets Gan Seow Ann.
The fines will go towards investor education initiatives.
Mr Gan also said that the primary intent of the new rules is not to curb short-selling per se but to deter failed share delivery - which threatens to compromise the settlement system. 'It was never meant to be a response similar to what you see in other environments, where regulators have banned short-selling,' he said, though it was easy to make such an association as the measures came just after regulators imposed short-selling curbs elsewhere. Mr Gan stressed that the measures are largely pre-emptive. 'Despite the market turbulence and all these uncertainties, trading continues to be orderly and there was no pressure on the system as far as settlement is concerned.'
On the Hong Kong bourse, naked short-selling is illegal and subject to jail terms and/or fines. The Hong Kong stock exchange (HKEx) said yesterday it also plans to increase the penalty fee for securities settlement failure……
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