Short-selling can boost SGX’s liquidity, but market resilience must be preserved
Both objectives are complementary, not mutually exclusive
THE commentary, published on Sep 23, 2026, in The Business Times, calling for greater post-initial public offering liquidity on the Singapore Exchange (SGX) raises an important debate at an opportune time.
The aftermarket experience of recent listings such as NTT DC Real Estate Investment Trust (Reit) and UI Boustead Reit shows why it matters. UI Boustead Reit, for example, closed its first trading day 8.5 per cent below its IPO price.
This does not establish abusive short-selling. But it raises an important question: When substantial selling occurs immediately after an IPO, can regulators reliably distinguish between normal investor selling and concentrated short-selling using borrowed stock?
The call for a deeper securities-lending pool has merit. Short-selling is an essential part of modern capital markets, supporting price discovery, hedging and market making. But increasing the stock available for borrowing addresses only half the equation.
A short position eventually creates buying demand when it is covered. But the path matters.
Concentrated selling of borrowed stock can consume successive bids and accelerate a decline. This can trigger algorithmic selling, institutional risk limits, stop-losses and margin calls, creating a self-reinforcing cycle that erodes investor confidence before the short-seller eventually covers.
Nor is this merely an IPO or small-cap issue. Singapore is a relatively small equity market connected to enormous pools of internationally mobile capital.
Even large index stocks can be vulnerable where concentrated selling overwhelms available buying liquidity.
Lessons from the Asian financial crisis
The Asian financial crisis was an enduring lesson in the importance of robust market architecture.
When confidence breaks and global capital overwhelms relatively small markets, financial-market stress can quickly transmit into household wealth destruction, corporate financing and the wider economy.
The lesson is not that Singapore should protect markets from short-selling.
It is that our regulatory framework should be sufficiently robust to protect the integrity and orderly functioning of SGX – and ultimately Singapore’s economy – when markets come under extreme stress.
What other markets do
Other sophisticated markets allow short-selling while imposing safeguards against destabilising price pressure.
Hong Kong permits covered short-selling in designated securities but applies a tick rule. During continuous trading, regulated short-sale orders generally cannot be made below the best current ask.
Investors can express a bearish view, but cannot as readily establish that position by repeatedly hitting successively lower bids.
The US takes a different approach. Under Regulation SHO Rule 201, once a stock falls 10 per cent from its previous close, short sales are generally restricted at or below the national best bid for the remainder of that day and the following trading day.
The US also has market-wide circuit breakers for severe falls in the S&P 500.
Singapore already has individual-security circuit breakers, short-sale marking and market-manipulation rules.
The question is whether these safeguards should evolve as our securities-lending and institutional short-selling capacity deepen.
Trust the data – but verify it
There is also a fundamental issue of trust in short-sale data.
SGX’s framework places responsibility on the end-investor for accurately marking sell orders, while trading members are not generally required to verify each customer’s marking.
Published short-sale statistics therefore need effective regulatory supervision and verification if they are to command confidence.
Auditing every declaration would be disproportionate. Risk-based exception surveillance is more practical.
Concentrated successive bid-hitting, repeated executions at progressively lower bids, abnormal securities borrowing, or selling materially different from market normal trading behaviour should trigger scrutiny.
These patterns do not prove manipulation. They should prompt regulators to look behind the trades and, where appropriate, reconcile short-sale markings against securities-borrowing, custody and clearing records and identify the beneficial positions behind them.
This becomes increasingly important where securities pass through global custodians, lending agents and prime brokers. Apparently fragmented activity may ultimately represent a much larger concentrated economic position.
A disclosure regime is only as credible as the integrity of the data entering it.
Build both sides of the architecture
The answer is not to discourage securities lending or legitimate short-selling, nor to prevent fundamentally justified price declines.
If Singapore deepens its securities-lending market, it should simultaneously examine appropriate short-sale price disciplines, reliable marking and verification, visibility over material borrowing and beneficial short positions, and clear intervention protocols when markets become disorderly.
The choice is not liquidity versus regulation. It is liquidity with resilience – which are complementary objectives.
Singapore has invested considerable effort in rebuilding its equity capital market, particularly with the recent Equity Market Development Programme.
Success should be measured not only by the IPOs we attract, but also by investor and issuer confidence in the integrity, depth and resilience of the secondary market that follows.
That is an important debate for the SGX ecosystem – and one that deserves wider public discussion.
Esmond Choo Liong Gee
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