Asia Securities sheds light on opportunities for investors from CSE’s launch of Stock Borrowing & Lending and Short Selling

Asia Securities Ltd., Sri Lanka’s leading independent stockbroking and research firm, hosted an informative event on Stock Borrowing and Lending (SBL) and Regulated Short Selling (RSS) on Wednesday 1 November. 

The event brought together a group of local and foreign industry experts to discuss the benefits of SBL and short selling and the controls in place to ensure an orderly introduction of these new mechanisms. With the CSE launching both SBL and RSS today, the timely event provided participants with a chance to gain a deeper practical understanding of how these mechanisms will enhance market dynamics and help create a more diversified investment landscape in Sri Lanka.

Stock borrowing and lending will allow market participants to lend and borrow shares in certain listed companies in exchange for collateral (from the borrowing party). The borrowing party will be required to return the borrowed shares to the lender at a later date and pay a lending fee. This mechanism will provide the foundation for short selling. Regulated short selling will allow market participants to sell shares they do not own – i.e., that they have either borrowed or intend to borrow. A participant will do this with the expectation that the value of the shares will fall and hence, when the time comes to return the borrowed shares to the lender, they can do so by purchasing these shares back at a lower value than what they were sold for. 

The event kicked off with an engaging panel discussion featuring industry experts and was moderated by Asia Securities Equity Research Co-Heads Hilal Zainudeen and Shadhir Jannath. 

Speaking about the benefits of short selling for Sri Lanka, Pan Asian Securities Lending Association (PASLA) Chief Executive Officer Stephen Howard, highlighted the improvements to market liquidity and transparency that can be expected. He noted that increased trading volumes from short selling will provide additional market information to participants that can be used to gain a more comprehensive understanding of demand and supply dynamics. 

Colombo Stock Exchange Chief Regulatory Officer Renuke Wijayawardhane echoed this sentiment in pinpointing price discovery and improved market efficiency as the most significant benefits of short selling. He added that the introduction of short selling in Sri Lanka would limit the overvaluation of stocks and encourage a more rational market environment.

Wijayawardhane also spoke about the measures the CSE has taken to minimise the risks associated with SBL and RSS. He indicated that the CSE has limited the number of shares in each entity investors can short sell and has introduced stringent collateral requirements that aim to minimise the disruption sudden market fluctuations can cause. He noted that these measures would help protect both lenders and the wider market. 

Asia Securities Chairman and CSE former Chairman Dumith Fernando, during whose tenure at the CSE the SBL and RSS initiative was kicked off, underscored the benefits to corporate governance that short selling will bring. He explained that companies subject to short selling will be encouraged to implement improved corporate governance practices to limit the shorting of their stock. He added that in this regard, short selling would provide enhanced scrutiny and place greater pressure on the boards of listed companies to maintain high standards. He also explained the additional investment and risk management product introductions that short selling will help drive.

The event concluded with an insightful presentation by Asia Securities Research capturing key aspects of the SBL and RSS mechanisms set to be introduced to the Sri Lankan equity market.

Asia Securities has been the only stockbroking firm in Sri Lanka to host an investor event to educate investors on the topics of SBL and short selling. This reflects the company’s preparedness as the leader in the Sri Lankan equity market to provide SBL and short selling services to its clients by leveraging its unique international expertise. Asia Securities remains committed to assisting both lenders and borrowers in maximising investment returns while effectively managing risks.