Companies can't wait until short-sellers strike to build defences

TAN Boon Gin, the Singapore Exchange's (SGX) new chief regulatory officer, recently urged companies to res- pond quickly if they come under attack by short-sellers.

That advice, while sound, unfortunately makes a difference only to those companies that have already earned the market's trust in the first place. Otherwise a prompt response on its own is meaningless. Anyone can pull a trigger - it is the prepared soldier whose aim is true, whose ammunition is full, and who has comrades by his side who will survive the ambush.

Let's be upfront about short-sellers: they are the vultures of the market, in the best sense of the word. When a stock is weak and falling, short-sellers who want to close out their positions give long-only investors the exit they desire. In the best of cases, short-sellers who do their homework help to reveal shenanigans that assists the market as a whole to clear out the trash. There is a vital role for scavengers in the ecosystem.