The Colombo Stock Exchange (CSE) is delighted to announce the launch of Regulated Short Selling (RSS) via Stock Borrowing and Lending (SBL), effective from 6th November 2023.
This initiative seeks to bolster market efficiency, liquidity, and investor confidence, in line with international standards.
SBL, an innovative CSE initiative, connects lenders and borrowers of shares for a set period, enabling them to capitalize on prevailing market trends. The CSE will review the eligibility of securities quarterly, with only specified eligible securities allowed for SBL transactions.
All investors with Central Depository System (CDS) accounts can now participate in SBL transactions as lenders or borrowers via their respective trading participants and custodian banks (CDS participants). CDS participants can act as intermediaries for SBL transactions, facilitating seamless order submission.
For lenders, SBL presents a unique opportunity to utilize a portion of their portfolio not actively used for regular trading, generating an additional fee-based income. Meanwhile, borrowers can leverage price movements in a declining market to amplify their gains.
Regarding Regulated Short Selling (RSS), the CSE is implementing checks and balances to ensure risk management and market stability. Only shares of specific listed companies meeting liquidity criteria will qualify for RSS. Additionally, RSS will only be conducted through the Automated Trading System (ATS) via trading participants, prohibiting orders submitted by clients via the internet.
A critical aspect of RSS is the Uptick Rule, triggered when the price of an eligible share declines by 10% from its previous closing price. The Uptick Rule ensures that short sales occur at prices higher than the most recent trade, thereby curbing potential market manipulation and volatility.
Chairman Mr. Dilshan Wirasekara affirmed that the introduction of regulated short selling through stock borrowing and lending demonstrates their commitment to cultivating a resilient financial market ecosystem in Sri Lanka. He emphasized that this initiative not only enhances the market’s appeal to local and international investors but also strengthens their position as a progressive exchange.
