Bangladesh Securities and Exchange Commission has drafted rules for short sales of shares to legalise the issue at the country’s capital market with the aim of launching new products including derivatives and sukuk at the market.
Short sales are a transaction in which the seller does not actually own the stock that is being sold but borrows it from the broker-dealer through which he or she is placing the sell order. The seller then has the obligation to buy back the stock at some point in the future.
Short sales are not permitted in the country’s capital market as per the existing rules.
BSEC has recently posted the rules on its web site seeking public opinions.
According to the drafted rules, stockbrokers may only enter into the short sales of any eligible securities on behalf of clients, if the transaction is confirmed by the client in a format approved by the exchange and the stockbroker takes the responsibility for ensuring the timely delivery of the securities.
Stockbrokers and dealers would only enter into the short-sales of any eligible securities, if they have entered into a valid contract for securities borrowing, unless otherwise specified by other rules or regulations.
Stockbrokers and dealers must meet the margin requirements and the net worth requirements defined by the exchange or the CCP as appropriate.
‘The borrower would borrow securities under an agreement determined by the exchange for a specified period with the condition that, the borrower must return securities as per agreement at the end of the specified period along with the corporate benefits accruing on the securities borrowed, since the beneficial interest of the securities borrowed would continue to remain with the lender and all the corporate benefits shall accrue to the lender,’ it said.
The clearing house of the exchange or the central counterparty, as the case may be, must ensure the settlement obligations during return settlement at the end of the specified period.
The proposed rules said, ‘In case of failure of the borrower to return the securities or corporate benefits the stockbroker or stock dealer shall be liable for making good the loss caused to the lender.’
‘The stockbroker or stock dealer must be entitled to receive or encash eligible collateral securities, as determined, and fees from the borrower for assuming the obligation to return the securities to the lender in the event of default of the borrower to return the securities to the lender,’ it said.
Short-selling must not be permitted by the exchange, if the securities is under an offer for merger or acquisition or the securities is not eligible securities for short selling, the rule said.
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