Ways to minimise need for buying-in
THE Singapore Exchange (SGX) has in its Nov 13 letter to BT clarified that failed share settlements are usually because of human errors rather than intentional naked short sales and that measures to improve the exchange's forced settlement process known as "buying-in" have to be balanced against the potential for market abuse.
This is a sensible and responsible approach to dealing with a difficult and sensitive issue, especially since anecdotal feedback from brokers confirms the human error explanation. Even though the onus is on individual investors to trade in the correct amounts, many are prone to miscalculating their shareholdings when the market is active and can easily mistakenly oversell.
When this happens, they face an anxious three-day wait to be bought-in, an exercise which can result in painful losses if share prices have risen in the interim.
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