Recent announcement by SC and Bursa Malaysia launching IntraDay Short Selling (IDSS), many investors and traders may be interest to know more about IDSS. However, no idea where to start off or find out more.
Before we go into the details of Malaysia IDSS, lets run through some basic explanation about short selling for those who do not understand it.
What is Short Selling
Short selling is where you have a view that a certain financial instrument price will go down and you sell it at the current high price first then buy back at the low price in the future.
The profit is measure by the selling price at high side – the buy back price = profit.
A layman example :
You run a business of selling coca cola, you sell your coca cola at RM 2.50 by taking stocks from your coca cola supplier first at a cost price of RM 1.
You sell your coca cola to your customer first at RM 2.50. End of the month you pay your supplier at RM 1. So you make profit from the difference.
However, some market offer different type of short selling.
1) some have no terms, take the coca cola first and pay the invoice later. Which means, you borrow the coca cola from the supplier first then you pay them back in the future.
(NORMAL SHORT SELLING)
2) you don’t have any coca cola in hand. You received an order from your customer to buy 10 cartons of coca cola. You take the payment from your customer and you place an order with your supplier.
(NAKED SHORT SELLING)
What is IntraDay Short Selling (IDSS)
Currently Bursa Malaysia is offering intra-day short selling. Which means you get to short sell a list of counters approved by Bursa Malaysia within a day (See below for the list of stocks available for short selling). At the moment there are only 280 counters are allowed for short selling.
Your trading account will not have access to IDSS by default. Traders & investors have to request with your broker and require to sign a Securities Borrowing And Lending Agreement (SBL), Request Form & Risk Disclosure Agreement by the broker.
Examples: You enter a short selling position on BERJAYA in the morning on Monday, 16th of April 2018, without having any BERJAYA shares. Before the end of trading days, you are required to close the short position before the end of trading hours on 16th April 2018.
Here’s something every short selling traders have to take note, try to close the short position by 4:45PM. Reason is because the market will enter into matching time(Pre-closing), if you have not close the position before 4:45 PM, you might not able to buy back your short selling shares by 4:59PM, because after 4:50 PM to 4:59PM is trading at last, all stocks are to be traded at last price.
What If You Failed To Closed The Short Position Within the Day?
If fail to closed the position, you will have to borrow shares from the license shares lender approved by Bursa Malaysia (or transfer from your other CDS account to cover the short position or from your IMMEDIATE family members CDS account only), such borrowings incur charges and interest. Charges (transfer charges of RM 10.60 is fixed charges by Bursa Malaysia) and interest vary from brokers and the agreed price to borrow the said shares are subject to agreed price too, therefore traders have to take note on the charges and make sure it doesn’t affect your profitability. Confirmation of borrowing must be done on 5pm and by 6pm.
However, the borrowing shares are subjected to availability. If your existing broker do not have enough of shares to lend to you, they are required to request from other brokers, but still subject to availability.
Borrowing shares doesn’t mean that you can continue to keep your short selling position open forever. According to regulation, traders who borrow shares from licensed lender must return the shares back to lender latest on T6 and borrower have to buy back the shares within T6, take note : interest will be charged daily within T6.
This is the reason why you need to sign SBL agreement mentioned above.
Traders & Investors Responsibility
Different broker will have different arrangement for short selling in terms of trading limits, cut off time, borrowing interest, penalty for fail trades, & others.
As a traders, we have to make sure we understand all the charges and procedure before we commit to short selling trades. Don’t be afraid to ask your dealer and remisier!
Keep your brokerage low for IDSS
Additional charges to take note, because short selling is only allow for day trade at the moment. Therefore, low brokerage rate is very important, at the moment in the market only cash account (which means, you only allow to trade up to the fund you deposit in, eg : deposit RM 10,000, can trade within the RM 10,000 only.).
So make sure your brokerage rate is low. You may contact us to open a trading account with Kelvin Yap under Mplus Online broker.
They are offering Intra day trade brokerage rate at 0.05% or RM 8 whichever is higher. Buy & hold at 0.08%or RM 8 whichever is higher.
If we have missed out some important information in this blog, feel free to let us know and feel free to share this information out but it will be much appreciated if you can put us as the reference for our effort and respect, thank you in advance!