Thai stock exchange investigates potential naked short selling offences

A specialised committee has been established by the Stock Exchange of Thailand (SET), designed to delve into the issue of naked short selling. The team will comprise representatives from the Korea Exchange and Nasdaq stock exchange in the US, brought in to aid Thai regulators in their investigation into potential offences.

The committee’s work is slated to commence imminently, as the SET gears up to scrutinise short selling transactions from the previous quarter. Brokers are being called upon to present evidence demonstrating that their clients genuinely borrowed stocks from custodians. A 15-day deadline has been set for the submission of this evidence.

Brokers who fail to provide adequate evidence or are discovered to have breached regulations in concert with a client could be subjected to disciplinary action. Furthermore, they may face legal repercussions if found to have contravened the Securities and Exchange Commission (SEC) Act.

Rongrak Phanapavudhikul, the SET’s senior executive vice-president and head of legal affairs, pinpointed omnibus accounts as a specific area of focus. These accounts, often opened by multiple individuals jointly and frequently used by foreign institutional investors, typically have anonymous owners.

Historically, the SET has faced difficulties in obtaining evidence of borrowed stocks from brokers, as many have alleged they needed permission from a multitude of agencies. Furthermore, the bourse previously lacked the authority to conduct in-depth examinations of such information, reported Bangkok Post.

However, the SEC is set to assist with these more extensive investigations, leveraging its legal authority. The SEC will cross-reference the information provided by brokers with that from custodians to ensure consistency.

Short-selling transactions

The SET recently reached out to brokers, sub-brokers and custodians, requesting their cooperation in the investigation of short-selling transactions. They are also asked to collaborate with the SEC to identify the beneficiaries of these transactions.

Rongrak revealed that the SET board decided on Monday that there was no need to adhere to the SEC’s suggestion to adjust the short-sell pricing rule. This would have necessitated setting the price for short selling above the last price (the uptick rule) to avoid price dumping.

He stated, “There is no need to use it and we are still using the zero-plus tick as the Thai stock market is volatile because of global sentiment, not unusual transactions.”

The SET has plans to closely monitor trading activity and is prepared to pivot if any unusual circumstances begin to impact trading.