#Currently on Stocks – For issues that are trending in a state where the stock market is in the Underperform stage, it is clear that one of them does not miss the issue of Short Selling and Bare Short Selling transactions. Therefore, Kingsford analysis department Therefore, we took this opportunity to provide information to investors and present our opinion on the matter in question.
What is a Short Sale?
A Short Sell is a stock sale transaction where the seller borrows stocks from a securities company or organization that provides stock lending services. Short sellers are required to deposit a security deposit (Margin) with the stock lending company. Including paying a short selling fee on a daily basis until the short seller returns the borrowed amount of shares (closing the short), that is, borrowing shares to sell first.
So what is a Bare Short Sale?
A Naked Short Sell is a Short Sale transaction in which the seller neither owns nor borrows shares. But you can send sales orders.
Do Short Selling and Bare Short Selling affect the market downturn?
In practical terms, do Short Selling transactions cause the market to decline? Overall, it is still a complex issue with many variables involved, such as the underlying conditions of listed companies in the market at the time, liquidity as a result of Short Sale transactions, etc. Examples of case studies of Short Sale transactions include case studies from Beber and Pagano Topic: “Short Sale Bans Around the World: Evidence from the 2007-09 Crisis” which is a study of the banning of Short Sale transactions in many countries during the crisis subprime The result of the conclusion is that the ban on Short Sale transactions led to the liquidity of the Market being significantly reduced. And there is no evidence that banning short selling has a positive effect on stock prices in most markets in more than 30 countries, except in the case of the US stock market where there is a positive relationship.
In our opinion Theoretically speaking, Short Sell will create selling pressure and is one of the controls that keeps the price from being in the overpriced zone, but the negative impact on the market may not be lots of cheap Short Volume It is controlled by the number of shares the short seller can borrow, but Naked Short Sell is much worse. Because it will cause exaggerated selling pressure from the supply of stocks that don’t really exist. As a result, the price of stocks that were sold under pressure fell more than usual. It is not surprising that Naked Short Selling has been made illegal in most countries.
Short Selling still has advantages, but Naked Short Selling has disadvantages, so it’s illegal So does Naked Short Selling still exist?
Although Naked Short Sell is illegal in most countries, But breaking the law or noticing that the law is being broken is often seen in foreign markets, such as
1. Case of South Korea where Bare Short Sale transactions were detected during 2023.
2. In the case of GameSpot stocks in the US with 140% of shares short in 2021.
3. The case of US Dendreon stocks in 2020
An example of the recent ban on Short Sale transactions.
If talking about the recent banning of Short Selling transactions We have to talk about the South Korean stock market, which has banned Short Selling many times and most recently banned on 5 November 2023 (until the end of June 2024).
Timeline of South Korea’s ban on short selling transactions
Regarding the impact of the latest ban, it was found that On the first trading day of 1 day after the announcement of the ban (published on Sunday 05 November 2023, the first trading day Monday 06 November 2023), the KOSPI index adjusted +6% and during the period 03 Nov.-31 December 2023 +12% If we consider the data set of 38 bars before and after the ban, it will be found that the trading volume during 6 November 2023-28 December 2023 will be low than in the period 6 September 2023-3 November 2023, approximately -7%
Short Sell and the Thai stock market
Regarding short selling in the Thai stock market The value share of Short Selling is as per the table as follows.
It can be seen that if we only consider the factor of increasing Short Sales, it cannot be concluded that it has a negative effect on the direction of the movement of the SET if we do not consider other factors such as the profits of listed companies in the market, flow foreign currency etc.
In brief For Short Sale transactions, it is still debatable whether or not they are positive rather than negative. But he will notice that In many markets, measures to ban Short Selling have been used as a tool in cases where the market is highly volatile, such as in the case of the subprime crisis or the ban on South Korea’s Short Selling in 2023 after for Bare Short Sale transactions to take place etc. In our view, short selling transactions in normal times are a good market tool that balances prices and contributes to liquidity.
However, the question that arises today Inevitably, the question is, is the market currently normal or not? and unusual cases Will the introduction of measures to control short selling transactions (either a ban/or a specific ban) have a negative impact on liquidity likely to reduce further than benefit?
Article by Apichai Raomanachai, Securities Analysis Department, Kingsford Securities Public Company Limited.
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