Le­gal Brief­ing

Traders are re­quired to re­port their short sell­ing po­si­tions through MAS’ new on­line por­tal SPRS.

Singapore Business Review - - CONTENTS -

On 28 May, the Mone­tary Au­thor­ity of Sin­ga­pore (MAS) an­nounced that it is re­quir­ing in­vestors to re­port their short po­si­tions and short sell or­ders in se­cu­ri­ties that are listed on the Sin­ga­pore Ex­change (SGX). The ra­tio­nale be­hind the new rule, which will take ef­fect on 1 Oc­to­ber this year, ac­cord­ing to MAS, is to im­prove the trans­parency on short sell­ing ac­tiv­i­ties in the se­cu­ri­ties mar­ket and en­able in­vestors to make more in­formed trad­ing de­ci­sions.

What’s the new rule all about?

In­vestors who are en­gag­ing in trad­ing ac­tiv­i­ties of at least 0.2% of to­tal is­sued shares or units or at least $2m in se­cu­ri­ties listed on SGX are re­quired to re­port to MAS through a new on­line por­tal, the Short Po­si­tion Re­port­ing Sys­tem (SPRS). In line with trans­parency and in­for­ma­tion dis­sem­i­na­tion, MAS noted that it will pub­lish ag­gre­gated short po­si­tions of each se­cu­rity on Wed­nes­day of each week.“the new rules will also pro­vide statu­tory back­ing to SGX’S trad­ing rules which al­ready re­quire se­cu­ri­ties bro­kers and banks to flag all in­vestor short sell or­ders to the ex­change,” ac­cord­ing to MAS, adding that there will be no change to the cur­rent ar­range­ment for in­vestors to in­form their bro­kers when they sub­mit short sell or­ders.

Some of the prod­ucts that will be af­fected by the new rule from MAS in­clude shares, units in a busi­ness trust, and units in a real es­tate in­vest­ment trust (REIT) that are listed on the SGX, ac­cord­ing to anal­y­sis from Allen Overy. The rule ba­si­cally ap­plies to both pri­mary and sec­ondary list­ings on shares.

Kai Loon Loh, coun­sel at Ashurst Sin­ga­pore, said in a com­pany pa­per about the new MAS rul­ing that there re­main some clar­i­fi­ca­tions, and in­ter­est­ing ques­tions, as to whether sta­pled se­cu­ri­ties are cov­ered by the Short Sell­ing Reg­u­la­tions.“for ex­am­ple, if a sta­pled se­cu­rity con­sists of a unit in a REIT and a unit in a busi­ness trust, one would ex­pect the sta­pled se­cu­rity to be caught by the short sell­ing rules,” he noted in the com­pany pa­per. “How­ever, if the sta­pled se­cu­rity con­sists of a share and a note, then it be­comes less clear-cut.”

“Ac­cord­ingly, where an in­vestor has other per­sons mak­ing trades on his be­half, he re­mains re­spon­si­ble for re­port­ing the short po­si­tion al­though he may del­e­gate the task to th­ese other per­sons,” the Allen Overy anal­y­sis pointed out. “Un­like the re­quire­ment to dis­close short or­ders, there is no ex­emp­tion for mar­ket mak­ers.”

But when should th­ese in­vestors and reg­is­tered rep­re­sen­ta­tives re­port th­ese short po­si­tions and short sell­ing ac­tiv­i­ties? Ac­cord­ing to Allen Overy, the re­port­ing of the short po­si­tion must be done within two work­ing days af­ter the po­si­tion day. Or­di­nar­ily, there­fore, this will be the fol­low­ing Tues­day, but it de­pends on the ac­tual po­si­tion trans­ac­tion.

Prepa­ra­tion

As MAS’ new rule will only take ef­fect at the be­gin­ning of Oc­to­ber this year, af­fected firms and stake­hold­ers will have at least a month to pre­pare for the reper­cus­sions in their op­er­a­tions and busi­ness deal­ings. Ac­cord­ing to Ashurst’s Loh, Sin­ga­porean busi­nesses and firms can pre­pare by fo­cussing on var­i­ous ac­tion points and im­ple­men­ta­tion de­ci­sion-mak­ing pro­cesses. Th­ese in­clude work­ing out when is a sell or­der a “short sell or­der” and how to de­ter­mine “short po­si­tions”; work­ing out how to per­form the rel­e­vant cal­cu­la­tions to de­ter­mine whether the short po­si­tion thresh­old has been breached; ap­ply­ing to the

MAS to be reg­is­tered as an ac­count holder of the SPRS; and hav­ing in place the op­er­a­tional pro­cesses to mon­i­tor and dis­close short sell or­ders/re­port short po­si­tions in a timely fash­ion.

It will also be ex­tremely help­ful if Sin­ga­porean busi­nesses can start con­sid­er­ing whether to dis­close/re­port at a trad­ing desk level, fund man­ager level, or trust level

(as ap­pli­ca­ble) or on an ag­gre­gate ba­sis, whilst set­ting up the in­fra­struc­ture to re­port short po­si­tions, or cre­at­ing the nec­es­sary user ac­counts like how many and at what level, for in­stance, and fa­mil­iaris­ing with the func­tion­al­i­ties of the SPRS to avoid con­fu­sion and er­rors.

Whilst the ra­tio­nale be­hind the MAS rul­ing was straight­for­ward in a sense that it aims to im­prove trans­parency in the se­cu­ri­ties mar­ket in the city-state, not ev­ery­one is con­vinced that it makes life eas­ier. Pres­i­dent of the So­ci­ety of Remisiers Jimmy Ho, noted in a sep­a­rate in­ter­view, that the new re­quire­ment pre­sents a has­sle to in­vestors be­cause it dou­bles their re­port­ing work since, ac­cord­ing to him, they al­ready re­port to SGX— ques­tion­ing the need to re­port to MAS and pre­sent­ing the case of why can’t the two or­gan­i­sa­tions be linked in their sys­tems in­stead.

The rule ba­si­cally ap­plies to both pri­mary and sec­ondary list­ings on shares.

A new on­line por­tal is ded­i­cated for the re­port­ing of short po­si­tions

Kai Loon Loh

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