When in 2021 an army of online traders decided to take over the Wall Street hedge funds that shorted US video game retailer GameStop, one man in Manila was watching the ensuing chaos: Philippine Stock Exchange CEO Ramon Monzon.
Monzon has been pushing to launch shorts in the Philippine stock market to attract foreign funds, but local regulators have raised many concerns, including concerns about the wild price swings seen during the GameStop frenzy.
“they [the Philippines Securities and Exchange Commission] Monzon recalled during a recent interview with Nikkei Asia.
Monzon has since moved to placate regulators, explaining that foreign funds will boost liquidity at PSE and refresh an exchange whose product offerings have been lagging behind those in Southeast Asia.
“We’re far behind without short selling,” he said.

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Short selling is a trading strategy that allows investors to bet on a decrease in the price of a particular stock. It involves borrowing shares and selling them at one price, hoping to buy the same number of shares at a lower price later to return them to the lender.
The PSE index held steady at 6,620.83 on May 22, barely improving from the end of last year and still down 27 percent from its peak in January 2018. The Philippines has largely recovered from its deepest post-war recession in 2020 after prolonged pandemic lockdowns, but is High inflation and high interest rates are lingering risks.
Without hedging options, Monzon said, foreign investors would likely manage risk by withdrawing from the market. About 275 billion pesos ($4.92 billion) of foreign money exited the Philippine stock market from 2018 to 2022, wiping out much of the gains since 2009, according to CEIC data.
“Our market is a ‘long only’ market, if there is any doubt in the Philippine market . . .[foreign investors]They will sell out. Otherwise, how will they protect their investment? Monzon said.
Regional exchanges in Singapore, Indonesia, Thailand and Malaysia already allow short selling, while in 2020 Vietnam considered rolling it out.
The Philippine Securities and Exchange Commission in late 2019 approved the Guidelines Governing Securities Borrowing and Lending and Short Selling. But its implementation is still being worked out.
The SEC was reviewing an application by the Philippine Depository and Trust Corporation to act as a securities lending and borrowing agent, Monzon said, the last major regulatory approval required before an exchange could offer a short sale. He added that PSE was ready to launch the strategy once the PDTC received approval.
To address the SEC’s earlier concerns about the use of foreign assets as collateral for borrowed shares — that is, that domestic investors would have a hard time seeking recourse if the collateral was held overseas — Monzon said the use of the offshore guarantee would be limited to domestic and foreign institutional investors for whom it had trustees in The Philippines.

Short selling would give foreign investors hedging options, Ramón Monzón said, reducing the possibility of “selling out” in times of market uncertainty. © Gilson Teo
“I keep telling the SEC, this is the first step we need to take to be able to attract foreign investors again,” Monzon said. “We need hedge funds here. Hedge funds are very important in any market right now.”
He said a GameStop-like scenario, where short positions exceed 100 percent of available shares, would not happen in the Philippines.
Under the PSE rules, only the 30 blue-chip companies that make up the PSE index and only 10 percent of their outstanding shares can be sold. There must also be a rise in price before the shares can be sold short. The rules are subject to revision.
Short selling has come under increased scrutiny in the US amid a sell-off in regional banks, with some calling for the practice to be outlawed, particularly in relation to bank stocks.
But Monzon, a seasoned accountant with an MBA from the University of Chicago, has a different perspective. “they [short sellers] It brings the mind to the market.” “So, for me, short selling is a very good product.”
He cited the cases of US energy group Enron, which collapsed in 2001 after short-seller Jim Chanos helped expose its questionable accounting practices, and the cases of India’s Adani Group, whose frothy valuations vanished early this year after a scathing attack by the short-seller. Hindenburg Research. The US group accused Adani of “egregious stock manipulation and accounting fraud”, allegations the Indian group denied.
Monzon said Philippine blue chips, mostly backed by the country’s influential family-owned conglomerates, were on board with the short-selling scheme.
“If your company is, say, a solid, upright company, you don’t have to worry,” Monzon said. “Otherwise, you will get nervous,” he added.
Attracting foreign investors to Manila is crucial for PSE, which seeks to encourage listings from large companies and medium enterprises.
Monzon said he expects 14 companies to go public this year, up from nine in 2022, including mid-cap companies under the PSE program that prepares them to launch initial public offerings.
But large IPOs are likely to require significant foreign input amid limited domestic liquidity. Big listings in the pipeline include a $1 billion real estate investment credit offer by mall conglomerate SM Prime Holdings and an initial public offering appeal of up to 33.2 billion pesos ($595 million) for Prime Infrastructure Capital, owned by port and casino mogul Enrique. Razon, which controls the largest gas field in the Philippines.
“They’re a little concerned because at this time the market liquidity is very low,” Monzon said of Prime Infra’s IPO delays.
Analysts said the introduction of short selling was a positive move.
“There is another way for a trader/investor to participate in the market that will eventually lead to an increase in market size, which we are sorely lacking, and in a timely manner improve liquidity, which addresses one of the primary concerns of foreign participants about our domestic market,” said Bernard Tsai, Chief Operating Officer At BDO Securities.
Alexandre Dawes, president of Maybank Securities in the Philippines, agreed, but cautioned: “The main risk will be more pronounced market volatility once investors can take both directions.” [long and short] In the market.”
a Issuance This article was first published by Nikkei Asia on May 15, 2023. © 2023 Nikkei Corporation. All rights reserved.