Borrowed scrip summaries add value for investors

SGX’s daily Marking of Sell Orders report commendable; but more can be done to enhance its usefulness

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Guanyu said…
Borrowed scrip summaries add value for investors

SGX’s daily Marking of Sell Orders report commendable; but more can be done to enhance its usefulness

R Sivanithysivan
23 December 2014

It is encouraging to see that the Singapore Exchange (SGX) now publishes its daily Marking of Sell Orders report at the end of each trading day instead of the next day, thus addressing a key shortcoming (no pun intended) raised in this column nine months ago (BT Hock Lock Siew “Short selling data still falls short”, March 14, 2014), which was that the reports were released one day late. However, even though the data is now delivered promptly to investors, more has to be done to improve its usefulness.

Before doing this though, it is important to have a clear idea of what these reports hope to achieve. If the aim is simply to give the public an idea as to which stocks were favoured among short-sellers and traders during any given day, then simply aggregating all trades marked as short as per the current practice would arguably suffice.

If however, the goal is to produce a gauge of bearish sentiment that might aid investors in their decision-making, it would then be necessary to exclude all trades which were squared off before 5 pm to arrive at the nett positions still outstanding at the end of trading.

This is not currently done - SGX’s website actually cautions readers from reading too much into the figures since they include positions originally marked as short but subsequently closed during the session. As most market watchers would appreciate, this means the figures have little value because they are overstated.

If the goal is to provide useful information to investors, the daily report must then also include the total turnover done that day in each stock in terms of units and dollar value, and the nett outstanding short positions should then be expressed as a percentage of those totals.

This is because looking at absolute figures in isolation may lead to wrong conclusions - on Tuesday, for example, when the Straits Times Index plunged 2.4 per cent, the value of DBS marked as short was S$11 million versus S$10.4 million for UOB. This suggests that DBS was more heavily shorted than UOB that day; however, when we express those figures as a percentage of Tuesday’s turnover done in DBS and UOB, we find the opposite to be the case - DBS’s marked-as-short trades were only 7.5 per cent of the S$146 million done in the stock, whilst UOB’s were 10.6 per cent of the S$98.4 million traded in UOB that day.

SGX’s website does give value traded for each counter so investors reading the Marking of Sell Orders report at the end of each day can work out the proportions for themselves but this would be a very tedious and laborious process.

Given the sophistication of SGX’s computer systems, it should be a simple task for the exchange to modify the existing format so that the report a) netts off closed short positions and thus only shows outstanding shorts, and b) includes total volume and value done in each counter and the relevant proportions described earlier.

Yet another area where disclosure can be improved is by complementing the daily reports with scrip borrowing/lending (SBL) summaries. The starting point should be SGX’s own SBL business since its website states that there are 600 eligible securities which can be borrowed/lent and 11,600 participating investors lending through SBL to 18 financial institutions.

Over in Hong Kong, the exchange collates its SBL data and issues summaries twice a day - at lunch time and after trading ends. Traders can therefore keep tabs on trends and changes in short positions. This practice should be adopted here and, if it is combined with properly formatted daily Marking of Sell Order reports which show only outstanding shorts, should result in investors having better information for decision-making.

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