MANILA - The Philippine Stock Exchange (PSE) will allow short selling starting October this year, its president said Monday.
In short selling, a trader borrows shares whose price he thinks will decline and then sells them in the open market. Once the shares' price falls, he buys them back at the lower price and returns them, making a profit via difference in the stock's old and new price.
However, if the stock's price rises, the trader loses money as he has to buy them back at the higher price before returning them.
PSE president and CEO Ramon Monzon said the stock market will introduce short selling amid a clamor from foreign investors. But he added that the PSE is putting safeguards into short selling.
"We're not going into this recklessly," Monzon said in an inteview with ANC's Market Edge.
Short selling will be limited to the 30 component stocks of the PSE index. The practice will also be limited to 10 percent of the outstanding shares of a company.
Besides short selling, the PSE is also looking into derivatives, Monzon said.
The PSEi closed flat on Monday at 7,186.62. The market lost 20 percent of its value this year, entering bear territory.